Do all wireless routers even cheap ones act as firewalls. Is encryption
required.
With all due respect to anyone else, the routers use something called NAT,
it's not a firewall, but it acts, by the way it "routes traffic" in a
manner that blocks unsolicited traffic from WAN to LAN.
A firewall can tell the difference between HTTP and any other traffic over
port 80, it can tell the difference between SMTP and anything else over
port 25. The NAT routers, like the Linksys WRT54g and most anything under
$400, just doesn't do that.
Now, at the very least you want one, a NAT Router (mistakenly called a
firewall), as your first and minimum level of front line protection. This
level will let you connect any PC to the network and keep them from being
compromised while sitting there. What they won't do is let you visit a
malicious website, click on a malware and block it from reaching your
machine - they don't do that, they just block "Unsolicited INBOUND"
connections.
The cheapest Firewall I've seen that can properly protect a home user is
the D-Link DFL-700 unit - it can be setup to block files from web pages,
and other common things, in addition to providing a secure connection, and
if you have multiple IP (WAN) it will allow you to properly NAT them to a
real LAN and DMZ network.