Being a draft N router, that model is not supported by the iphone or more to the point, the iphone doesn't work on draft n. There may be a work around. In your router configuration (through the browser interface), trying setting your antenna to broadcast in g only. Should be under a tab labled SETUP->Wireless Settings...I suspect your broadcasting in N. If that doesn't work, then you may be s.o.l.
On the other hand, if you can connect with encryption off, my next feeling is one of your router based encryption settings is set wrong. Go into those and make sure that you are using the correct key length/type/standard, etc. I'm nearly positive your issue is router settings based.
Are you absolutely sure your encryptions match? Meaning, the router is using WPA and your iPhone setting for wifi is set to wpa? Is it possible your home router is using WEP? If so, are you set to Passphrase or AScii/hex?
I believe based on your posts you have this set properly and understand the difference, but I had to check.
have you tried to start fresh? Meaning, powering down the router, deleting ("forgetting") all wifi connections you've attepted to set up? As a last resort, have you tried to restore the iphone? Is your router firmware up to date? I checked the dlink website and there are a number of revisions for your router.
I dont think its the brand as I have a dlink and it works perfectly.