I'm trying to understand your setup

You see on mine, 3 PCs: 1 wired (Ethernet), other 2 connected wirelessly to the
wireless router. The router handles all the traffic, i.e. internet & file sharing. I think this is called Infrastructure mode

So if I enable WEP/etc on the router, in each machine (except the wired one) I have to provide the key in Windows when connecting.