Having just gone through the experiance of connecting wifi to the pi, which was painful to say the least, some lessons I learnt were. the wifi dongle must be on a powered usb adaptor of no more than 4 ports, using a dongle directly connected to the pi gave inconsistant results, using more than 4 ports corrupted the operating system. downloading a fresh OS was by far the quickest way of getting back to square one. using a cable ethernet connection even though a wireless connected PC and using ICS (internet connect sharing) to get the latest updates is very useful. get all the lastest updates by using apt-get update and apt-get install, takes a little time but is worth doing. if your using wpa-conf and/or interfaces to set up your connection, accuracy of typing is critical, I left out a "}" in wpa-conf and got a similar result you posted in your first post. and finally using a clean fully updated os I went for WICD as a connection manager and it work as advertised.
I'm left with just one wee problem although fully connected to the internet and can surf anywhere, I cant ping anything on the local network, but i can connect remotely from a local PC using ssh.
Good luck.
Rick