Sounds like you might have put the encryption key wrong. As you've hooked up other devices, I'll assume that you know your terminology. Make sure you've entered your SSID, WEP/WPA key (make sure you choose the right option) and that you're setting up an Infrastructure connection (Ad hoc is for short range wireless between PSP's and possibly network adapters).
I don't think a router would stop accepting new devices. A good test would be if you asked a friend with a wireless laptop not configured on your router to come to your house and try to establish a wireless connection. If he manages it, the settings on the PSP are at fault.