After some attempts to solve this, I've decided to eliminate one the major difficulty of the challenge. For 40 bits, find the English sentence in challenge two, where the key is 12632. Perhaps that was a bit too much to ask, but now I'm pretty much giving it away, am I not?
An additional 40 bits will be given for code to encode and decode the given phrase in a language of your choice. It should not and may not be more than 10 lines long in a high-level language, excluding any overhead, or you're doing it wrong.