I am configuring my linux AP remotely (SSH) since I run it headless (no monitor). I am installing on Slackware 11 with a 2.6.20 kernel. My network is as follows Cable modem connected to a LinkSys Wireless router (WRT54G) that I have 3 hosts connected to, one being the linux box. Wired access works fine. Due to number of clients connecting to the Linksys router I am running out of room for port forwarding and choose to use linux as the router. Linux had 2 wired ethernet cards in it 1 to receive internet from cable modem 1 for internal network and a wireless to set up as an AP, all drivers installed and working (from what I can tell, by having access or listing lspci and lsmod). Installing Hostapd and wpa_supplicant went well with no problems using the madwifi driver for the D-Link AirPlus card using the Atheros AR5212 chipset. I run the following commands in order (not run from script till I can get it working).

wlanconfig ath0 destroy
wlanconfig ath0 create wlandev wifi0 wlanmode ap
iwconfig (to make sure mode was set to master)
iwconfig ath0 essid Home-Lan
ifconfig ath0 192.168.1.3
wpa_supplicant -dw -c /etc/wpa_supplicant.conf -Dmadwifi -i ath0
then in second ssh window
hostapd -dd /etc/hostapd.conf

My /etc/wpa_supplicant.conf file looks like this
update_config=1
ctrl_interface=/var/run/wpa_supplicant
eapol_version=1
ap_scan=1
fast_reauth=1

network={
ssid="Home-Lan"
psk=<removed>
key_mgmt=WPA-PSK
pairwise=CCMP
proto=WPA
#proto=RSN
priority=5
}

My /etc/hostapd.conf file

interface=ath0
#bridge=br0
driver=madwifi
#logger_syslog=-1
#logger_syslog_level=2
#logger_stdout=--1
#logger_stdout_level=2
debug=1
dump_file=/tmp/hostapd.dump
ctrl_interface=/var/run/hostapd
ctrl_interface_group=0
ssid=Home-Lan
#macaddr_acl=1
#accept_mac_file=/etc/hostapd/hostapd.accept
#deny_mac_file=/etc/hostapd/hostapd.deny
auth_algs=1
#eapol_key_index_workaround=0
#eap_server=0
wpa=1
wpa_psk_file=/etc/hostapd/wpa_psk
wpa_passphrase=1000431170
wpa_key_mgmt=WPA-PSK
wpa_pairwise=TKIP CCMP

When I try and connect from a Windows XP laptop I can see the AP and I can connect but nothing works no web pages show can't connect SSH or VNC ping fails checking a the /var/log/messages I have this in them
Sep 15 23:20:34 host hostapd: ath0: STA 00:0c:e5:4a:77:40 IEEE 802.11: associated
Sep 15 23:20:35 host hostapd: ath0: STA 00:0c:e5:4a:77:40 WPA: pairwise key handshake completed (WPA)
Sep 15 23:20:35 host hostapd: ath0: STA 00:0c:e5:4a:77:40 WPA: group key handshake completed (WPA)
Sep 15 23:22:07 host hostapd: ath0: STA 00:0c:e5:4a:77:40 IEEE 802.11: disassociated

the output of the route command looks like this:
Kernel IP routing table
Destination Gateway Genmask Flags Metric Ref Use Iface
localnet * 255.255.255.0 U 0 0 0 eth1
localnet * 255.255.255.0 U 0 0 0 ath0
loopback * 255.0.0.0 U 0 0 0 lo
default 192.168.1.1 0.0.0.0 UG 1 0 0 eth1

Even thought of problem being firewall and shut it off then added basic rules to forward traffic from ath0 to eth1 which would give me services, but that didn't work either. Would like to get this working so I can remove the linksys router all together.

I thank you for your time and efforts in advance.

Change this:
wpa_supplicant -dw -c /etc/wpa_supplicant.conf -Dmadwifi -i ath0

to this:
wpa_supplicant -dw -c /etc/wpa_supplicant.conf -Dwext -i ath0

I tried that and that didn't seem to work, it may be because I noticed on the output of the wpa_supplicant line that it produces a ioctl[SIOCSIWMODE] Invalid Argument Could not configure driver to use managed mode & ioctl[SIOCSIWAP] Operation not supported. Think if I can figure out the source of the problem and get it fixed that should solve the problem.