have had the same problem, update to feisty reboot and 
no working rt2500 pci wifi card

I use a custom compiled vanilla kernel and driver from 
rt2x00.serialmonkey.org (legacy) The same combination 
worked in edgy so i guess that the problem lies in wireless tools...

Kernel version is 2.6.20.8 and the driver is a cvs snapshot from 
a few weeks

i  have used this in my /etc/network/interfaces for eges without 
major problems
iface ra0 inet dhcp 
        pre-up ifconfig ra0 up
        pre-up ifconfig ra0 down
        pre-up ifconfig ra0 up
        pre-up ifconfig ra0 down
        pre-up iwconfig ra0 essid "myssid"
        pre-up iwconfig ra0 mode Managed
        pre-up iwpriv ra0 set AuthMode=WPAPSK
        pre-up iwpriv ra0 set EncrypType=TKIP
        pre-up iwpriv ra0 set WPAPSK="A shared key"
        pre-up ifconfig ra0 up

The interface comes up and gets an ip by dhcp but no traffic is allowed
as if it have not been autentificated

pings and sudo ifdown ra0 results in msgs like:
send_packet: operation not permitted

Any hints?

-- 
RT2500-based wireless G network card cannot be set or reset on 2.6.20-11
https://bugs.launchpad.net/bugs/92742
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