To add some info on the issue:
This is most definitely related to the drivers, and how WICD handles them in the R1 release....Upon opening WICD, it will scan for and locate wireless AP's. When I attempt to connect, WICD goes through its normal process: Disconnecting active connections>putting interface down>putting interface up>validating authentication....Then I immediately get "Bad password". What I have found is when WICD takes the interface down, it stops the driver...So when WICD reports "putting interface up", the card has been turned off and no driver is loaded....Its basically "unplugging" the card....I figured this out after getting the SIOCFFLAGS error in airmon....
I followed the wiki on rt2800usb drivers and ran all of this:
root@bt:~# ln -s /usr/src/linux /lib/modules/126.96.36.199/build
root@bt:~# wget http://linuxwireless.org/download/compat-wireless-2.6/compat-wireless-2011-07-14.tar.bz2
root@bt:~# tar jxpf compat-wireless-2011-07-14.tar.bz2
root@bt:~# wget http://www.backtrack-linux.org/2.6.39.patches.tar
root@bt:~# tar xpf 2.6.39.patches.tar
root@bt:~# cd compat-wireless-2011-07-14
root@bt:~# patch -p1 < ../patches/mac80211-2.6.29-fix-tx-ctl-no-ack-retry-count.patch
root@bt:~# patch -p1 < ../patches/mac80211.compat08082009.wl_frag+ack_v1.patch
root@bt:~# patch -p1 < ../patches/zd1211rw-2.6.28.patch
root@bt:~# patch -p1 < ../patches/ipw2200-inject.2.6.36.patch
root@bt:~# make install
New drivers didnt solve my issue, and actually created the "Fixed Channel -1" issue in airodump....I havent found any solution to these issues yet, so I used Time Machine to revert back to my original BT5 install....It works FLAWLESSLY....Im going to install R1 as a second VM and hopefully a solution can be found for all of the issues with the Alfa in R1....