I've been using your tetherapp with great success. I'm at our cabin where we don't have any other internet options. I really like that you don't have to jailbreak your phone. I am getting normal http operation to work as well as https, ssh etc. I've been using tsocks and proxychains with success too, as long as dns requests are not involved.
I have had to configure firefox to do dns lookups through the SOCKS server. Other apps cannot seem to use dns. I am wondering if it would be possible to work with your app and add some sort of dns relay support.
Is the source code available? I've found http://graha.ms/androidproxy/proxysrc.tar.gz
, but that seems to be an old http-proxy. Is the code for Tetherbot available too perhaps?