I just setup a Dell 5150 laptop with wireless. Identical to the 5160 but with a slightly slower processor. Works just fine to a DLink DI-614+ on channel 11. (Incidentally, watch out for the power connector. The wire to the tiny center pin will break if you shove the laptop, with the connector attached, into the wall behind the laptop).
Are you sure it's the latest firmware? Bring up the web config and read the version number in the upper right corner of the page.
OK, the BEFW11s4 v2 is deemed functional.
Ok, verify that it's the laptop. Drag it to a nearby free hot spot and try to connect. Same with any neighbors systems you can see. You don't need to actually connect, just get the signal strength and signal quality (S/N ratio). If that laptop doesn't work at a hot spot, then it's time to yell at Dell.
Good. There are quite a few wireless fixes in SP2.
One paragraph summary. 802.11 wireless encapsulates 802.3 ethernet packets. Delivery is via bridging, not routeing. Layer 3 settings and features are handled exactly the same way they would be handled with a wired ethernet connection. In infrastructure mode, the access point selects the channel and the client radios follow.
Power save won't have any effect. The idea behind power save is to turn off the radio when it's not being used.
One possibility is that you have some setting on the client set to802.11g mode only. I dunno if there is such a setting on the Dell client, but it might cause connection difficulties.
Another possibility is that you've loaded some wireless sniffing or monitoring software that is interfering with the driver. Ethereal, NTop, Netstumbler, and such will cause problems. I'm not too sure about Boingo (Earthlink wireless) which comes with the Dell. Try to uninstall or disable it. Incidentally, for disabling startup programs, I recommend Startup inspector for Windoze 2.10:(640KB)
The Dell should work on channel 6. I think it's busted. However, the only way to be absolutely sure is to try it with another known working wireless access point (hot spot) and to disable anything that might cause problems.