Rather than start a new thread, I'm adding my (somewhat) related notes here.
I'm using KaosFroyo 37 on my rooted Eris, which doesn't support builtin wireless tethering, so I downloaded Wireless Tether (for rooted phones) from the market. I'd played around with it a few weeks ago and everything seemed OK. Then yesterday I played with it a bit more (could connect to the internet fine with encryption turned off, but not with encryption enabled). Then I turned off the tethering and went back to doing other stuff.
This morning I found that I couldn't turn my phone's Bluetooth on. I rebooted the phone and still the Bluetooth wouldn't turn on. So I uninstalled wireless tether, and Bluetooth still didn't work, but Bluetooth now works fine after an additional reboot.
Just a data point in case anyone finds themselves in the same situation.