Do you have the newest Airport software on the iBook. The latest firmware for the base stations allow for the use of the newest authentication encryption method, and in fact default to it. If you don't have the newest software on the client computer you can't connect, and it complains about the password. This is actually a security feature, and it is unfortunate that they didn't foresee this when creating the old software (not a bad thing... just a lack of excellence).
If you never updated your base station, then the CD that came with it probably has the software you need on it. Update with that software, and then things should work.