Temporarily disable wireless secuirity then try again - this will prove whether or not the X-Box has a problem or if it definitely one of the security key
In your computer, open Internet Explorer and type 192.168.0.1 into the URL address bar as though it was a website. You're then at the login page to the router's settings utility and admin will usually be the login with either admin or password as the password.
If you're in, seek out Wireless and then Security and disable it or reduce it to WEP. Don't let this experiment last a minute longer than it needs and reverse the changes then exit the router's settings. Post back your results.
By the way - a security key is case sensitive.