Although the iPronto *does* work fine with WEP, I agree that you should disable it as it just adds another layer of something that might be configured wrong.
You should be able to log in to your modem and check whether the wireless portion even sees your iPronto (at least my standalong let me do that - useful for determing issues).
I believe the "Y" only appears when you have successful communications to the wireless access point - right SSID, WEP, etc. Don't think it has any bearing on whether it can communicate with the DHCP server or anything else.
DHCP does not work right on early firmware releases (which is what you likely have).
Try changing your SSID to something easier, without dashes. Fill up the maximum number of characters as well (some wireless stuff works oddly with SSIDs that are shorter).
Do any lights come on on the iPronto's wireless network card?
Enter the DNS servers used by your ISP, not the ones used by your router for testing (so no 192.168.whatever addresses).
