I ran into an issue last night trying to download the latest Xbox 360 dashboard update. The first part of the download came through okay, the system rebooted okay, and then all hell broke loose. Okay, it wasn't really that bad, but the little WPA2 update for the 360 wireless adapter basically hosed my connection to my Airport Express router.
After 20 minutes of getting "can't connect to your wireless network" errors, here's what I discovered. My AE was set to the wireless mode "WPA/WPA2 Personal". With that mode, the 360 would not accept my network password at all, no matter whether it was specified in the WPA field or the WPA2 field. It just flat out would not connect. By switching the AE into WPA2-only mode, the 360 was finally able to accept the network passphrase.
I'm not sure why the old method didn't still work, but oh well. Hopefully this post will help some other poor soul who runs into the same problem.