It is possible the DSL modem cannot operate at WPA2 level only but is WPA plus WPA2.
The TC should certainly be set to WPA2 Personal security.
Try again with the modem.. select WPA2 only if it has that option, TKIP and AES. Each box has its own setup variations... use a password that is 8-12 characters pure alphanumeric mix of upper and lower case and numbers.
If it still falls back to WPA, I would not be over concerned. WPA is still good security. It can be broken but will take considerable time and effort. Not your average hacker type of approach.. use a non-standard wireless name and perhaps a longer key for it and then it shouid be fine.
OR
Turn off wireless in the modem.. with the TC you can set it in bridge mode and just use the TC wireless.
OR
Bridge the ADSL modem and use just the TC with PPPoE client for WAN.. then the wireless on the modem can stay on but is no longer relevant.. a person cannot then get access to either internet or LAN via the pppoe link.