The problem with WEP is that it doesn't actually help using 128 bits, there's a weakness elsewhere in the protocol and that's why it's essentially useless (it'll keep out those you don't have to worry about, but it won't keep out those you *should* worry about).

As for your connection problem: It sounds a bit like you you might be bitten by the power savings problem. Try to change the setting on your N800 and see if it helps.