>when I use the WEP security, with the ethernet connected, both Apple TV and computer connect.
That is because you are connecting via eithernet. WiFi is not used if there is an ethernet connection.
>When I remove the ethernet cable I lose connectivity of both devices.
Well ya, if you remove the only connection they won't be able to connect.
The fact that neither the computer or ATV can connect to your WiFi setup pretty clearly shows the issue with the router. ATV supports WPA so there is no reason you could not use it. Are you sure you are using the WiFi password setup in your router and not your computer user ID or AppleId?