Instructions for using Windows Connect Now are available in this Microsoft Support article. You'll need a USB flash drive, and you'll need to be running XP Service Pack 2 or later, or Vista, on your PC. (This thread on another site suggests that it can be done with Windows 7 as well.)
Basically, you're going to back up your wireless profile to the flash drive, go into the menu on your 360, and have it load the profile from the flash drive.
With respect to the length of the key, this thread from 2007 suggests that at the time, the 360 would not support a key of more than 15 characters with AES encryption. I have a wired connection myself, so I can't say whether or not that is still a problem from personal experience.
This current US support page does not mention any issues with key length, and it does mention these tips ... note that there is no mention of key length.
Xbox 360 S console: The Xbox 360 S console’s built-in Wi-Fi uses the 2.4 gigahertz (GHz) frequency band. If your router is broadcasting using another frequency, your Xbox 360 S console cannot connect to your wireless network. Check your router documentation to find out how to set your router to broadcast at 2.4 GHz. If you want to connect using the 5 GHz frequency band, you will need to add the black Xbox 360 Wireless N Networking Adapter to your Xbox 360 S console.
Xbox 360 S console and black adapter: The Xbox 360 S console and the black Xbox 360 Wireless N Networking Adapter cannot use the 802.11n wireless protocol in combination with WEP or WPA TKIP encryption. If your router requires WEP or WPA encryption, your console will try to connect to your wireless network using a slower wireless protocol such as 802.11b, 802.11g, or 802.11a.
Use WPA2 if possible: The best wireless encryption to use with your Xbox 360 console is WPA2 with AES encryption.
Wireless N router and a gray adapter: If you have an 802.11n or N type router and a gray Xbox 360 Wireless G Networking Adapter, configure your N type router to use a mixed mode; broadcast using a combination of wireless standard N and either B, G, or A.