I upgraded from 2.1 to 2.3 over the weekend and I experienced a similar problem today when I tried to create a wifi hotspot. The Ipad would see the network and 'connect' but I couldn't connect to the internet and the 3G/H symbol on my phone was not responding. I knew the problem had something to do with upgrading, since I was using Barnacle on a rooted phone perfectly before (at the same location at work).
Anyway, after doing some research and a couple hours of messing around with it, I finally got it working. This is what I did:
I created a new Access Point and called it Tether (the name is irrelevant):-
Goto Settings->>Wireless & Networks->>Mobile Networks->>Access Point Names->>Click the left button->>choose 'New APN'
I copied all the settings from my original Access point (Rogers)
Then I changed the APN Type from "default,mms,supl" to "default,mms,dun" on the new APN
I then saved the new APN (this is important to ensure that the settings are saved).
Now I made the new APN current and set up my Portable WiFi Hotspot with security.
The first time it did not work.......so I switched of my phone and turned it back on again.
Made sure that my new APN was set to current and then set up my Portable WiFi Hotspot.
This time I had a gut feeling that it was going to work because I could see the 3G/H icon on my phone responding (i.e. upload/download arrows).
I then proceeded to connect to the Ipad and sure enough, this time it connected and I could use the internet. Brilliant!!!
Anyway just to note, that I am on Rogers in Canada using Stock 2.3 (not rooted), and I do have tethering available on this network (6G data plan).
Hopefully, this will help some others, but again I guess it depends on your service provider and their restrictions.