Possible WRT54G Router Fix
Facebook post: http://www.facebook.com/topic.php?uid=195383023822358&topic=288
Credit goes to Marcos Lontra: http://forums.steampowered.com/forums/showpost.php?p=23471919&postcount=41
To solve the issue with Linksys WRT54G (Firmware Version: v8.00.8):
1-Access the router page (like http://192.168.1.1/)
2-You will see the tab Setup, sub-tab Basic Setup
3-Change "MTU: Manual"
4-Change "Size: 1458"
5-Click the Save Settings button
This is it, enjoy the game.
Good luck!
Also +rep Marcos on the Steam forum if you have a forum account set up!

Four already? I was going to check in after the boss fight. Gosh things move fast. I'll give it a spot in the Performance Issues FAQ on the wiki.
It works. :)
EDIT: BUT, does this have any negative side effects?
Worked! Bless you, gentle sir!

@xsaard222: Basically its a setting that aids in network efficiency depending on the characteristics of a network connection. It works by controlling how big a packet can be before its allowed to be routed out an interface. If a packet is too big, it'll break it down into fragments before sending them through. On slower connections (circa dialup), a lower MTU allows smoother packet flow since larger packets (which takes longer to send) won't be choking up the line. On faster connections, a bigger MTU is more efficient since you can send more user payload per packet with the same amount of overhead.
What I've read so far on the web, it appears the Linksys firmware has had broken MTU auto detect for at least 2 years (probably longer). The next two questions now is why the router messes up with a max size packet, and why does SK trigger that?

The switch to the VxWorks system as the router's OS seems to be the breaking point. Meaning that this has likely been an underlying issue since mid/late 2005 when the first WRTs like that started to show up.
If the issue is that old, and appears to have triggered on Xboxs at odd times, I'd say Linksys probably isn't very committed to fixing it.
It is working for me also.
Now i can lock myself in my room again XD
This is fairly damning proof that Linksys/Cisco writes janky firmware. A personal thanks to Marcos and others spreading the word about this fix--I was dying to know what was wrong with these routers!

@NazoUN: You need to have javascript enabled on your browser for it to display correctly. What exactly is the browser reporting when you try to bring the page up?
This works! I have been trying to find a fix for this game since day 1!! Thank you SO MUCH op!!!
Given that this is the first time in more than a decade something has not worked like this on my WRT54G, I'm much more inclined to believe it is a bug in spiral Knights. I've never had to change the MTU before.
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@thatdood look up xbox live. Its not a specific bug in the game, but some kind property in the authentication traffic that the router doesn't like. Xbox live has had the same problem, with the same work around.
So far 4 confirmed fix between this and the Steam forum.