With the same hardware I had the connection drop when I went to
battery[2].  Do you see that too or is authentication the only thing
that fails for you? What happens if you are connected to a WPA2 network
and then go to battery?

Yesterdays 2.6.39 20110408 daily ubuntu mainline kernel [1] works very
well for me. Could you try that one (or the most recent one)?

[1] http://kernel.ubuntu.com/~kernel-ppa/mainline/daily/
[2] 
http://rt2x00.serialmonkey.com/pipermail/users_rt2x00.serialmonkey.com/2011-January/002872.html

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https://bugs.launchpad.net/bugs/734865

Title:
  [STAGING] RT2860 Wireless will not authenticate and connect when on
  battery power.

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