Try starting to Internet Sharing app, click "Connect" and immediately, before it can connect, click "Disconnect". See if you can now connect to the Internet OK by starting Internet Explorer (without Internet Sharing).
If so, for a permanent fix to Internet Sharing, go to the "Sprint HTC Mogul/SERO Notes" section in the following thread:
Internet Sharing over Wifi - with 10min TimeOut Fix (Nov-1-2007) - xda-developers
The thread also explains a newer method of Ad Hoc WiFi Internet sharing, written with the HTC Mogul in mind.