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Are there any SOHO class wireless routers that are capable of encryption at layer 2?

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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.

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Win for Open source routing. – jweede Aug 18 '09 at 12:04

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.

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