Even the original version of the WRT54G supports WPA-PSK with both TKIP and AES encryption. Just turn it on.
In addition to turning on WPA-PSK encryption, be sure to change the default password of the WRT54G. This router runs Linux and so a large part of the firmware is open source. Just as there is 3rd party feature-laden firmware for the WRT54G there can also be hostile firmware that can be flashed onto a WRT54G if someone gets access to it.