2 wireless pcs; WRT54GS router & WRE54G Range Expander

I would have tried high gain antennas on the router first. The normal 2 dbi are pretty bad.

As far as security,

Login in to the router, get to the wireless security section.
1st. Change the SSID to something other than default.
2nd. Select WPA-PSK or WPA-TKIP.
Encryption is only as good as the passphrase.
Use A-Z,a-z, 0-9, !@#$%^&*(). Enter a good passphrase. Use a Mix Of Upper and Lower case mixed with numbers and punc. Or you can use pre generated keys from GRC.com Copy and paste to note pad, it easier that way.
Write it down you will need it for all pc's that will connect wirelessly.
You will have to enter it twice.
Save all settings.

Now go to the pc.
You need to open up properties of the wireless port.
Select Wireless Networks
Select View Wireless Networks.
Select Your SSID
Use pull down menu to Select WPA-PSK
Data encryption should be TKIP
Enter Pass Phrase Key, (same one as router)
OK,

If every thing was entered correctly you should connect.

You should not need to change any thing on the expander, but I have not used them. They are a simple relay. I believe the the expander is associated with MAC address only.

You are correct on everything else.

I know what my first one was like, I can relate.

You have the hard part done, getting them to connect can be a pain.

As a rule on trouble shooting if you have problems. Start with a small key like 8 chr, if works expand .... till you reach the max, MS Zero config is like 24 chr.

Most errors accours in miss match keys, type o's Upper/lower case errors.