I have a linux box with intel 2915abg card in it, 192.168.0.1, dhcp server on that interface. It runs with WEP, no problem.

Nokia n800 connects to that access point, same wep key of course, and gets DHCP lease; sets gateway to the linux box, sets DNS etc etc.

so, you can get this to work; there's no magic in ad-hoc networking. The only thing you can't do is use WPA because you need a managed network as there has to be a network manager to control encryption.