[PPCFreak]

couple of questions:

1. Assuming you are on Stock ROM since no reference to a custom ROM in your post.
2. When the connection drops, is your screen going blank? Common issue when tethering is the device turning off and it drops the connection. There is a cab floating around from Ninja Duck that turns off sleep so that wifi tethering does not drop when the device goes to sleep (turns the sleep off so the device cannot sleep automatcially after a certian time). Gives you an Enable/Disable button to turn this on and off as you wish.