Your PC can’t send or receive packets after the PC connects because it was never actually authenticated to the access point. It only got as far as being associated to the AP.  The confusion is understandable because the terms both sound similar, and have similar meanings.

Authentication is simply a way for the device to verify the identity of another device that’s attempting to connect to it.

The first step in establishing a connection is to check that the other device is available, and so the PC first “associates” with the AP. During the association no information other than challenge/request handshake passes between the devices.

The Authentication challenge handshake uses the encryption key, and so the only way the two devices will authenticate is if they both have the same security settings, including encryption key.

If your client PC doesn’t have the matching WEP/WPA key, it can ‘see’ the AP in the list of available networks and associate to the AP, but cannot authenticate against it – and consequently there is no data transfer.

Our recommendation is to double-check the security parameters on the PC against those on the AP.  If necessary, turn OFF all wireless security mechanisms, check that the hardware works OK, then turn on the security one step at a time.  If it stops working, then you know exactly which setting is responsible.

For more information, see the Wi-Fi Planet tutorial Explaining Wi-Fi Authentication and Encryption.