I had my DDWRT setup in the same fashion a while ago. It ran into issues connecting on WPA / WPA2 etc. I believe at one point it would only connect to WEP or Open connections. It seemed buggy for me and eventually gave up on it, others have had better success but I ran into almost the same issues your having.
And I cant remember since it has been a while but after searching for the network and telling it to connect, I would also have to change the password under the wireless security settings. It seemed like the scanning would just auto-fill in the SSID but wouldn't actually change the password which would cause authentication failures.
2008 Chevrolet Silverado 2500HD 6.0, 3.73, Firestone Air Bags, CCSB LTZ
I ended up having to constantly power cycle my router, and at some point login and site survey to connect.. Ended up giving up on it a year ago. Never put it in the new trailer. When it worked - It rocked.
Just curious, but did you use the regular build or the micro build to flash your router? I just picked up another Linksys WRT54G v8 I found at a local Goodwill for $6. to flash DDWRT for use as a repeater. I believe that specific Linksys device development for DDWRT ended some time ago.
I haven't used mine in over a year but something tells me you have to match the security used... IE if the far side AP (access point) is using WEP the local one must use WEP if the far side AP is using WPA the local side should use WPA.... Etc..
I could be wrong but I think I remember reading something about that