Pinging a machine on my local network gets an 'unreachable' response from my own IP address?

Check the setup of your WiFi router. Some routers have an option to disallow communication between hosts on the WiFi interface. This option is useful for hotspots but not for home networks.

There's also a setting called AP isolation, which prevents communication between wired and wireless clients. On a Linksys router you can find it under Advanced Wireless Settings.

I have no idea why, but for some reason, resetting the wireless adapter on the Vista machine fixed all the problems. I hadn't thought to do that yet because the internet (and pinging the 2 routers) was working flawlessly on that machine. I'm confused as to how a USB wifi dongle could cause local network traffic to fail, while having internet work fine, but there you go.

Sorry to everyone who wasted time reading my in-depth descriptions and trying to figure this out, your help is appreciated.

Ok. So, just to cover some basics...

The second router upstairs is NOT using DHCP to pass out IP addresses, correct? If it is, you should turn off that service on the second router. I'm not saying to turn it off on both... the second router should essentially be set up in bridge mode... where it simply allows other computers to connect to the network it is part of. For example, with a Belkin router, you would simply enable "Bridge Mode" and multiple features (like DHCP) would be turned off and made inaccessible.

Now... have you turned off the Windows Firewalls for each of these computers for testing purposes yet? That should be done, to ensure that the Firewall included with Windows isn't causing the ping request to be blocked. You didn't say which version of Windows you are using, and with Windows 7 ICMP are indeed blocked by default with the built-in firewall. So, if you wanted to continue to use the firewall, you would have to create an exception on each computer to allow ICMP (ping) requests through. This doesn't mean the computers can't communicate with each other. You could have multiple network sharing services actively working with Windows 7, and still be blocked from pinging the machines. But *at the very least, disabling the firewall temporarily for testing** would be the way to go to see if indeed it is the firewall at issue here.

As a side note... can you view shared directories from each computer in question? Swap files, etc?

At any rate...

I've been trying to play Terraria on my home network, but I'm having troubles. After checking that the Terraria game and server were being allowed through Windows firewall on both machines, I decided to see if the two machines could ping each other, and they can't.

You left out something. You set up the server, gave it an exception in the firewall, you set up a client, gave it an exception in the firewall, and then decided to ping each computer. You didn't say what happened in between. Was it that you started the game on the client machine, and it couldn't see the server? Or did you think "Hmm... I wonder if these computer can even see each other, I'd better ping them." before you tried to connect the client to the server? Did you stick with the default port of 7777?