Hi there,
There is no problem with either your PSP or wi fi router. The problem lies with the way you connect to internet through BSNL. By default the BSNL connection is bridged one, which means that you have to dial the username and password through you computer and then only you can access internet. Now there is no such option in the PSP, so you are unable to access internet through it.
The solution is to force the modem / router to dial the connection.
Please go step by step for your router.
(a)
confirm you are on PPP/PPPoE mode "Always ON"
( user id and password to be entered in WAN page of modem )
(b)
Enable DHCP in modem Range say 192.168.1.3 to 192.168.1.10
(c)
ensure IP address of modem and wifi router are different.
(d)
Try Connection Wizard in WRT120n
(e)
try lan1 port to desktop from WRT120n
or in laptop( if available) and ensure
internet is connected.
(f)
Check in system you have created a WLAN network
(g)
Check Network SSID as given in wifi router appears
in Wlan network.
Please let us know if it helped you.