I'm very stuck on this question: I know that the equivalent voltage across the diode is 5V - 2V = 3V, but I just don't understand what to do with the resistances. Thanks for any help in advance!

http://puu.sh/8m2FR.png

 

If the voltage across the diode is 3V, then you have smoked the diode. The problem states that it is fully on at 0.7V, so how would you get 3V across it?

Draw two circuits, one in which the diode is off and one in which the diode is on. In both cases, replace the diode with something that has the same V-I characteristic as the diode does under that condition. The do the analysis for both and decide which is consistent with the condition assumed for that circuit.