Turning on WPA2 caused connection instability

Router: Trendnet TEW-432BRP, C1.1 R

I turned on encryption for the first time and set it to WPA2, PSK and AES (cipher type) a week ago, and that's when the wireless connection for all four of our laptops and an iPod Touch started dropping frequently at random times. It never happened before for the past few years until the encryption was set.

We have to manually connect to the router as the iPod Touch's wireless manager, Intel PROset (installed onto Window xp) and Window 7's wireless manager refuse to automatically connect. We have to repeatedly attempt to connect because the programs would say something like, "Cannot connect". Rebooting the computers and the router didn't help.

I also turned on Extended Range Mode but it didn't help The connection drops even when the wireless signal is at max strength. I haven't updated the firmware because it only fixed a packet size bug, and I'm not sure if it's related to the connection drops.

I also noticed that the connections drop more frequently when we are all using the wireless at the same time.

I tried restarting the router by unplugging it (pressing restart button would set it back to default settings), but it didn't work.

I then installed the firmware update, which ended up frying the router and disabling the modem.