So I went out and got a linksys N router last night. I couldn't get it to connect, but after 20 minutes with linksys support, its working great. The tech had me set it up using WPA (TKIP) encryption on my Vista laptop. Ok, working good now.
Problem is, when I try to connect to the network through my desktop using XP (SP2) I can only choose WEP as my security type, WPA isn't even listed.
The OP is using SP2 thus doesn't need any patches to use WPA/WPA2 etc, i have SP2 and my machines are all as old as SP2 itself ie i don't use any MS Auto Updates and no problems with WPA here.
What make and model is your desktop's wifi adapter ?, it could be that it's not WPA capable ?