Unfortunately the built-in wireless manager of the N900 does not recognize the combination of WEP and PEAP, and is only willing to connect to PEAP networks if they run WPA/WPA2 (in which case it actually runs quite nicely).
bazz - I don't think it's be fixed in the next version simply because I don't think there will be a next version. Nokia have already made it quite clear that they intend to drop Maemo as soon as possible.
The only solution I can find to your problem is to try installing wpa_supplicant on your device and connect to the network manually by using wpa_supplicant and iwconfig (yeah I know it's called wpa_supplicant but it supports WEP+PEAP as well). Unfortunately it doesn't seem that wpa_supplicant is available in any Maemo repository to you may have to compile it yourself (or maybe you can grab it from a Debian repository if it doesn't have an entire dependency tree that you don't have behind it).


Update: Actually coming to think about it, I think it may actually be possible to use the built-in manager to connect after configuring it manually once with gconftool. I'll look more into it if you want if you're still here to see the results.