I've found by accident how to "fix" that - if security mode is 'restricted' and 
key is set, then running:
iwconfig ra0 key off
iwconfig ra0 key [1] (or something else - just setting key back)
switches card back to security mode 'open' and it associates with ap - link 
quality and everything else gets back to normal! Hope it works for others too.

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RT2500-based wireless G network card cannot be set or reset on 2.6.20-11
https://bugs.launchpad.net/bugs/92742
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