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go to the dashboard,and test your conection,once it failes you can then search for your network,click on your network and type in the WPA key,which is written on the back of your router,and it should have no problem conecting to xbox live,depending on your conection,you mite have a bit of lag during online games.
two things, if you're using a wireless modem, unplug it from console, re-set it and let it connect and sit for a minute. then plug it back into the console. if you have just a regular modem do the same thing. make sure the wire connecting you're box to the modem isn't too long(over 7feet is too long). it wont update if you're not connected to the internet.
The xbox live board is down,so if you pass all tests except the xbox live one,this is the problem.I rang them and they said over 50% of users are having this problem.Its because so many people went on it over Christmas and the system got overloaded.They said they're working on it and it should be up and running in a week or two. ~~PS~~ I rang on the 12-1-08 so it should be up by the 20th,its not your fault,the servers down.