It seems that ipw2200 some sort of automatically supports nl80211 but it doesn't report any encryption capabilities back to userspace or at least not in a way network-manager understands (see nm's src/wifi/wifi-utils-nl80211.c)
I reported this bug to ubuntu developers. They asked me to file this here.
This bug does exist in a kernel compiled from linux-stable.git using tag v3.2.14.
Assigning to myself.
The posted patch fixes the problem I reported, but if that's fixed nm still doesn't show the signal strength of the connected network I guess (because once created using some patch nm can connect to this network but doesn't show any signal strength). I'll file another bug if I really run across that problem. Not a show stopper anymore but not working either. As was said: probably will not work
A patch referencing this bug report has been merged in Linux v3.5-rc1:
Author: Stanislav Yakovlev <firstname.lastname@example.org>
Date: Tue Apr 10 21:44:47 2012 -0400
net/wireless: ipw2x00: add supported cipher suites to wiphy initialization