I have the same symptoms.
Network-Manager keeps asking for a password when trying to comnect to a 
WPA-encrypted SSID.

However, I found out it works when switching off encryption in my router
or even using WEP.

syslog when trying to use WPA and working WEP connection attached.

cat /etc/network/interfaces
auto lo
iface lo inet loopback

** Attachment added: "syslog-wpa"
   http://launchpadlibrarian.net/18689207/syslog-wpa

-- 
wpa intrepid fails to autenticate
https://bugs.launchpad.net/bugs/263963
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