No 'grey area' about it. He has knowingly accessed a system (your wireless network) which he has no authority to access.
Sounds like a possible problem with the router's firmware, I'd download the instructions as Aragorn has linked to above and then do a full factory reset. From there I'd change the default SSID to something else, change the Admin password for the router, set it up for WPA wireless security, and see how you go.
If it fails again you may need to either update the firmware (again, instructions in the manual, or someone here can talk you through it) or purchase a new router and configure it properly.
More than happy to talk you through the config of this if you like once you've downloaded the manual and done the factory reset.
For now though I'd browse to
http://192.168.1.1 and shut off the wireless, just use wired access (by plugging a cable in the back between it and your PC) until you're sure you have the wireless secure.