Same thing happens on my EEE1001H running 9.10 / 2.6.31-rc4 with RaLink RT2860 
wifi Card.
The WIFI radio does toggle off, I have to turn it on after boot, but system 
hangs.. 
With Intel 2945ABG wifi Card it only connects to AP the first time. After 
update of packets wifi do not work.

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Turning wifi "off" using Fn+F2 on Eee PC 901 results in kernel panic (rfkill)
https://bugs.launchpad.net/bugs/404626
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