Guys this solution worked for me. I will repost: by mesagsx
http://discussions.apple.com/thread.jspa?messageID=10151807#10151807
I have a solution, and it worked for me today, which should make everyone here happy.
* Under airport menu, go to "open network preferences"
* Under "advanced" in the airport tab, click on "Require Administrator password to ... create computer-to-computer networks".
* click OK
* click apply
* under airport, create a network (using some unique SSID name, like blah1)
* under airport, disconnect from blah1
* go back to your airport prefs again (see above)
* uncheck that annoying option about requiring administrator password, etc...
* click OK
* click apply
* go to internet sharing and do your thing like you usually did before.
I'm guessing this is just a bug with a SETUID permission on an executable, now that this option has been added to snow leopard ... and the setting of that option, and subsequent unsetting of it is enough to get the setuid bits all correct.