Are there any SOHO class wireless routers that are capable of encryption at layer 2?
2 Answers
You can use IPsec (even with L2TP) with OpenWRT. It runs on a large number of SOHO routers. (List of supported devices.) A short guide about L2TP+IPsec on OpenWRT.
But you should know that according to some benchmarks you should only get 3 Mb/s with an average router.
Some routers have hardware assistance for encryption (e.g. the WRVS4400N). If you need performance you should choose one of them.
There are some relatively cheap routers like the WRV54G if you'd like something completely packaged. As Kovbal said, chances are you can take a current wireless router you have and do the same with OpenWRT/DD-WRT and OpenVPN/etc if that's a route you're interested in.