Yes, the SB should support WPA/PSK/TKIP just fine: I use that myself. 
And, yes, PSK is the three-letter-acronym for "password"...  Pre-shared
means "you have to enter this in each device".

Make sure you enter it -exactly- the same and have no trailing spaces
at the end on the SB.  If you're going from a longer key to a shorter
one, delete the characters at the end, not space over them.

The "personal" mode is what you want.  The other mode requires a server
for authentication and really isn't worth the trouble and the SB doesn't
support it anyway. :)

The differences between WPA and WPA2 basically boil down to two
things:

WPA  = TKIP Encryption, AES was "optional"
WPA2 = AES Encryption, TKIP is "optional"

There is some minor tweakage to the algorithms due to potential
weaknesses in WPA, but those weaknesses don't have a known exploit yet.
Either should be secure, and either is far more secure then WEP which
isn't secure at all. :)

The Squeezebox supports both WPA/TKIP and WPA2/AES.  Which you use
depends on other devices on your network and which they can handle.


-- 
snarlydwarf
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