Have you tried to connect the laptop to a wired port on the router?
Does it connect?
If you try connecting with WEP disabled does it connect? You may want to power down your desktop when you have WEP disabled--and make sure you have the key correct, so you won't have to change it when you re-enable it.
How are you entering the key? Typing it in? If so, Caps Lock off (Yeah, pretty lame, but it sometimes happens...)?