My guess is it's because you've got WEP enabled. I've seen this problem before. Disable WEP and you'll be fine. I don't know why this happens exactly and I too was unable to find a solution for it. New drivers/firmware didn't do any good. It didn't even work if the router and the PCMCIA card in my laptop were of the same brand. (and I've tried two brands!)
So I gave up on WEP entirely.

Instead of WEP, I use mac address protection. There should be a setting in your router's menu's where you can enter which mac addresses should get access to your router. Just enter the mac addresses of both your PC's and from then on all other PC's, who's mac address isn't in the list, will be denied access. This works pretty well. It's a bit more maintenance than a WEP setup since you have to enter the mac address manually into the router, but usually a home network stays the same for ages so once the correct addresses have been entered that's all you'll have to do.
Ok, so when a friend comes over and he wants to connect to your network you'll have to enter his PC's mac address to the list too first, but that's it. A one minute process at the most.

Another option is if your router also supports WPA. WPA is a newer encryption protocol than WEP and is more secure. Not all routers support this (yet), but you've got a good chance since it's one of those new 54g routers. Also, windowsXP needs an update before it will support WPA.

Fa small home network I believe tha's a bit overkill though : the mac-address protection is really all the security you need. The range of 802.11x is really way too short to be dangerous. The hacker almost has to be inside your house to do any damage.