This is the problem:

# iwconfig eth1 key 12345678
Error for wireless request "Set Encode" (8B2A) :
    SET failed on device eth1 ; Operation not supported.

It also produces a message in /var/log/messages:

Dec 14 11:29:26 XXXX kernel: eth1: could not initialize WEP: load
module ieee80211_crypt_wep

Does this mean that it is attempting to load ieee80211_crypt_wap and
thinks it is failing?  In fact, the module is loaded (see below) and
this behaviour is repeatable even if I load the module manually first.
  The ipw3945d daemon is running.   Other iwconfig commands work just
fine;  iwlist correctly detects local networks, etc.   I have seen a
suggestion that the arc4 and/or cr32c modules are not loaded; however
again I can load them manually without any luck.

Background info, with (what I hope are) irrelevant parts snipped:

# lsmod
ieee80211_crypt_wep     8769  0
ieee80211_crypt         9665  1 ieee80211_crypt_wep

# iwconfig eth1
eth1      unassociated  ESSID:off/any
          Mode:Managed  Frequency=nan kHz  Access Point: Not-Associated
          Bit Rate:0 kb/s   Tx-Power:16 dBm
          Retry limit:15   RTS thr:off   Fragment thr:off
          Encryption key:off
          Power Management:off
          Link Quality:0  Signal level:0  Noise level:0
          Rx invalid nwid:0  Rx invalid crypt:0  Rx invalid frag:0
          Tx excessive retries:0  Invalid misc:4   Missed beacon:0

# lspci
0c:00.0 Network controller: Intel Corporation PRO/Wireless 3945ABG
Network Connection (rev 02)

# uname -a
Linux XXXX 2.6.9-42.0.3.ELsmp #1 SMP Thu Oct 5 15:04:03 CDT 2006 i686
i686 i386 GNU/Linux

# yum info ieee80211
Name   : ieee80211
Arch   : i386
Version: 1.2.15
Release: 14.el4.at

# yum info ipw3945d
Name   : ipw3945d
Arch   : i386
Version: 1.7.22
Release: 4.at


# dmesg
ipw3945: Intel(R) PRO/Wireless 3945 Network Connection driver for
Linux (with 80211 built-in), 1.1.0-pre2
ipw3945: Copyright(c) 2003-2006 Intel Corporation

Hardware: Dell D620 with Intel 3945 onboard wireless.

Thanks in advance for any suggestions,
Richard.