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I am having the exact same issue. I've tried every combination of settings and same results. I tried clearing data from app then removing app and re-installing.
I can get internet for about 60 seconds then it quits working. I can't get encryption to ever connect. My tablet and PC will say connecting but never connect.
I am running Stock ICS and rooted.
Anyone have suggestions??

Took the plunge into CM10 and wifi tether works perfectly!
Wow what a great rom!

This may be a dumb question,but throughout this thread as people are discussing the built in wifi tether in tdm's rom, are they referring to the wifi direct app? I have tried to use that app as a hotspot for my laptop and tablet and could not get it to actually work. I also downloaded wifi tether and I kept getting an error after I would choose to tether. Is there a different built in tether app or method that I'm not seeing in his rom. Or maybe I am forgetting to check a certain setting or something. Thanks for the help !
http://androidforums.com/spectrum-all-things-root/664054-rom-quattrimus-jb-cm10-aokp41.htmlI have downloaded the linked WiFi tether and when I start it, I am not getting any error message sin the logs. It all seems to be fine, but the SSID does not broadcast and I cannot connect to it.
Could someone post a link to the download for TDM's CM10 ROM because I am having a heck of a time finding it.
There's a special modification (has TrevE in the name) that has to be side-loaded. See some previous posts with this link to download it:
Downloads - android-wifi-tether - Wireless Tether for Root Users - Google Project Hosting
The version from the Play Store does not work.
It doesn't have to be side loaded. As i understand it... tethering is actually built into the android os. Different ROMs may enable it differently and most stock rooms just block the option to turn it on. However its part of Google's source for it to be in Android.
Sorry if this was answered somewhere else. I haven't been able to find any solutions so far.
Is there a way to connect more than one device to the built in wifi tether? I can connect one computer just fine, but that's it. Trying to connect a 2nd one won't work.