OK, I've solved the problem!
To get the iPhone to work with a WEP encrypted connection, you need to choose a HEX key which corresponds to ASCII characters.
For a 40 bit WEP encrypted connection, you need 10 HEX numbers, or 5 pairs. Just choose a key which corresponds to 5 ASCII characters.
You can use a HEX to ASCII converter site like
Hex/Ascii Converter.
Eg. if you choose the key 41:73:63:69:69, you enter the password "Ascii" in your iPhone (running OS 3.x). (Hex 41 is A, Hex 73 is s etc.)
For a 128 bit key, you need 13 pairs, so you choose a word (or a string of ASCII characters typeable on an iPhone keyboard) consisting of 13 characters and choose the corresponding ASCII codes in your wireless router/access point.
I hope that explains how to use the iPhone with a WEP enables Wifi network. (It obviously requires a careful choice of HEX key.)
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