Internet lost after dist-upgrade

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Hello
I've run few days ago:

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sudo dist-upgrade 

This give me upgrade to my system on SD dard to

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Linux raspberrypi 3.6.11+ #474 PREEMPT Thu Jun 13 17:14:42 BST 2013 armv6l GNU/Linux

After this I've noticed that I've lost my Wireless connectivity on wlan0

Details:

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pi@raspberrypi ~ $ lsusb 
Bus 001 Device 004: ID 148f:5370 Ralink Technology, Corp. RT5370 Wireless Adapter

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wlan0     Link encap:Ethernet  HWaddr 00:0f:54:0d:b9:bb  
          UP BROADCAST MULTICAST  MTU:1500  Metric:1
          RX packets:0 errors:0 dropped:0 overruns:0 frame:0
          TX packets:0 errors:0 dropped:0 overruns:0 carrier:0
          collisions:0 txqueuelen:1000 
          RX bytes:0 (0.0 B)  TX bytes:0 (0.0 B)

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pi@raspberrypi ~ $ iwconfig 
wlan0     IEEE 802.11bgn  ESSID:off/any  
          Mode:Managed  Access Point: Not-Associated   Tx-Power=20 dBm   
          Retry  long limit:7   RTS thr:off   Fragment thr:off
          Power Management:on

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pi@raspberrypi ~ $ cat /etc/network/interfaces 
auto lo

iface lo inet loopback
iface eth0 inet dhcp 

allow-hotplug wlan0

auto wlan0
iface wlan0 inet manual
address 192.168.0.49
netmask 255.255.255.0
gateway 192.168.0.1

wpa-roam /etc/wpa_supplicant/wpa_supplicant.conf


#iface default inet dhcp

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pi@raspberrypi ~ $ sudo cat /etc/wpa_supplicant/wpa_supplicant.conf
[b]ctrl_interface=DIR=/var/run/wpa_supplicant GROUP=netdev
update_config=1[/b]

network={
    ssid="SKYA767C"
    proto=RSN
    key_mgmt=WPA-PSK
    pairwise=CCMP TKIP
    group=CCMP TKIP
    psk="!!1234RFV"
}

1st - I don't know what's are the lines in Bold in last code?
2nd - I've try to manage my wlan0 myself last week and I had a connectivity for a moment, now I've lost it again.

Can you please advise what's wrong - what need to be fixed?