According to the Xbox360's wireless adapter website page:
Some copies of the instruction manual for the Xbox 360 Wireless Networking Adapter state that the adapter is compatible with the WPA2 security standard. At this time the adapter works only with WPA and WEP security."
Lots of people have tried due to this error in the documentation, but i have never heard of anyone successfully setting WPA2 up with the Xbox360. I know my friend's will not connect to his Linksys WRT54G router when WPA2 (AES encryption) is used. WPA (TKIP encryption) works fine though. Usually WPA is still secure enough for the average home user. (But maybe not the paranoid Uber L33T gamer).
Edit: I just checked and there is actually a version of WPA that uses AES encryption which will also work with the Xbox360. (If your router supports it.) WPA with AES uses the same "fancy" encryption technique as WPA2, but leaves out some of the comercial authentication methods supported by WPA2. Since home users are mostly using Pre-Shared Keys (PSK) comercial authentication methods don't matter.
Thus, WPA with AES is the way to go for the most secure Xbox360 compatible wireless network.