This issue is still alive and well, and in my case, the ESSID of the network is 
not hidden.
Also, I'm seeing the following behavior on Debian Etch as well as Ubuntu (I 
have one identical machine on each distro). 

Wireless AP: 
linksys WRT54GL v1.1 with DD-WRT v23 w/ VPN firmware 
128-bit WEP Encrypted with hex key

Connecting host(s) hardware:
2 identical IBM Thinkpad x31 laptops, with IBM a/b/g wireless II (Atheros 5212 
based),
One running Debian Etch, one running Ubuntu 7.10 Desktop
using the default madwifi driver (ath_pci) on Ubuntu with the default x86 
kernel.

Symptoms:
Network Manager can connect via wired connection immediately, no problems

Network Manager can see my ESSID (ansible) and recognizes it is WEP
encrypted

Network Manager can see my neighbor's ESSID (default) and recognizes it
as unencrypted

Network Manager takes a long time to connect to any wireless source, but
it actually can connect consistently to the non-WEP access point.

NM is completely unable to connect to my WEP encrypted access point.  I've 
noticed that NM is able to associate the NIC with my WEP access point 
semi-consistently, but after that, it reports "Waiting for Network Key", and  I 
type in the correct WEP key in the dialog.  After I've hit OK in the dialog, it 
still is "Waiting for the Network Key", but interestingly enough, an "iwconfig" 
reports a bogus key has been set by NM, which doesn't even look close to what I 
typed in.  Strange.
After all is said and done, the connect attempt times out.

Another interesting fact is that I'm able to connect consistently and
quickly if I simply associate, set WEP key, and call dhclient manually.
I'm also able to connect reliably with wlassistant (which may be because
it is really calling the iwconfig commands like I would by hand, but I'm
not sure).

Oh, and one more thing... I only started having this problem sometime
after upgrading to 7.10.  Ever since that upgrade things have been flaky
with NM.

lspci output:
00:00.0 Host bridge: Intel Corporation 82855PM Processor to I/O Controller (rev 
03)
00:01.0 PCI bridge: Intel Corporation 82855PM Processor to AGP Controller (rev 
03)
00:1d.0 USB Controller: Intel Corporation 82801DB/DBL/DBM (ICH4/ICH4-L/ICH4-M) 
USB UHCI Controller #1 (rev 01)
00:1d.1 USB Controller: Intel Corporation 82801DB/DBL/DBM (ICH4/ICH4-L/ICH4-M) 
USB UHCI Controller #2 (rev 01)
00:1d.2 USB Controller: Intel Corporation 82801DB/DBL/DBM (ICH4/ICH4-L/ICH4-M) 
USB UHCI Controller #3 (rev 01)
00:1d.7 USB Controller: Intel Corporation 82801DB/DBM (ICH4/ICH4-M) USB2 EHCI 
Controller (rev 01)
00:1e.0 PCI bridge: Intel Corporation 82801 Mobile PCI Bridge (rev 81)
00:1f.0 ISA bridge: Intel Corporation 82801DBM (ICH4-M) LPC Interface Bridge 
(rev 01)
00:1f.1 IDE interface: Intel Corporation 82801DBM (ICH4-M) IDE Controller (rev 
01)
00:1f.3 SMBus: Intel Corporation 82801DB/DBL/DBM (ICH4/ICH4-L/ICH4-M) SMBus 
Controller (rev 01)
00:1f.5 Multimedia audio controller: Intel Corporation 82801DB/DBL/DBM 
(ICH4/ICH4-L/ICH4-M) AC'97 Audio Controller (rev 01)
00:1f.6 Modem: Intel Corporation 82801DB/DBL/DBM (ICH4/ICH4-L/ICH4-M) AC'97 
Modem Controller (rev 01)
01:00.0 VGA compatible controller: ATI Technologies Inc Radeon Mobility M6 LY
02:00.0 CardBus bridge: Ricoh Co Ltd RL5c476 II (rev aa)
02:00.1 CardBus bridge: Ricoh Co Ltd RL5c476 II (rev aa)
02:00.2 FireWire (IEEE 1394): Ricoh Co Ltd R5C552 IEEE 1394 Controller (rev 02)
02:02.0 Ethernet controller: Atheros Communications, Inc. AR5212 802.11abg NIC 
(rev 01)
02:08.0 Ethernet controller: Intel Corporation 82801DB PRO/100 VE (MOB) 
Ethernet Controller (rev 81)

-- 
A bug between Atheros Communications AR5212 802.11abg nic and  Ubuntus network 
applet
https://bugs.launchpad.net/bugs/111068
You received this bug notification because you are a member of Ubuntu
Bugs, which is the bug contact for Ubuntu.

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