Cavey
Yeh the industry standards are WEP, WPA and WPA2. WPA2 being the strongest going backwards. Only use WEP if your hardware (laptop, printer, etc) doesn't support WPA2. Though most devices do these days. I would even hide your SSID from broadcasting, that way when people browse for wireless networks nearby, it will not even display yours. This doesn't stop you from connecting to yours, it's just that you have to manually type in the SSID AND password. Added security really, as it stops bute force attacks, as they can't find it (well not easily).
In the UK, it is actually illegal to not have a password on your wireless!!! Though I don't think anyone would actually get prosecuted for it.
WEP is quickly breakable. WPA-PSK/ WPA2 certainly. If you don't need it, switch it off!
No, it isn't illegal to fail to set a password in the UK. All routers have one set by default...
It is illegal, however, to use an insecure wi-fi without authority.