"I have setup the DG with the WPA key from the laptop generated sequence"
You'll have to explain that one to me! Proper procedure for connecting a wireless client is as follows:
Begin without any security protocol. Use XP's wireless LAN icon in the Notification Area to search for available networks (you'll need to refresh the list manually to achive that), choose your network by its SSID (which should already have been changed by you to something unique. Connect.
If it works fine, go to the properties of your wifi adapter (in the Net Conn folder) and check that your network has been listed and assigned an automatic connection. Delete any other networks in this list. Disconnect.
No move back to a PC that is wired to the router and enable WPA-PSK using a long key of your own choosing - mix letters, numbers and symbols. Write it down accurately. Apply and log out.
Move back to the wireless client; attempt to find your network using the previous method. When you try to connect, you will be asked for the key. Enter it and it will be saved for that connection.