If the Client utility supports hex key usage, I suggest that you configure WEP in hex, rather the client utility will convert it to hex. you just have to type in your plain password. If the client utility does not support hex configure WEP key in ASCII on both AP and client.
I recently activated WPA-PSK on one of my 1240 AP ssids and I seem to have a similar problem. It seems to be sensitive to the client software being used. I tried the funk odyssey client and had no trouble, but I could not get the Intel to work until I used the 64 hex characters on both sides. You might try the funk client to see if it works. At least you will know if it is a client issue. You can download a 30 day trial copy from their web site www.funk.com