Same problem here, using a Linksys WMP54G (also rt2500) card in a
desktop machine (AMD64, but using 32 bit edgy). The card works fine for
me in Dapper with the following in my /etc/network/interfaces:

auto ra0
iface ra0 inet dhcp
pre-up iwconfig ra0 essid XXXXXXXXX
pre-up iwconfig ra0 mode managed
pre-up iwpriv ra0 set Channel=7
pre-up iwpriv ra0 set AuthMode=WPAPSK
pre-up iwpriv ra0 set EncrypType=AES
pre-up iwpriv ra0 set WPAPSK="YYYYYYYYYY"
pre-up iwpriv ra0 set TxRate=0

The following forum thread could be relevent:
http://www.ubuntuforums.org/showthread.php?t=263668&highlight=ralink

I can reboot to provide more information if anything else would be
useful.

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Failure to obtain IP with DHCP on Averatec laptop with rt2500
https://launchpad.net/bugs/60461

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