Same problem for me. iPhone 3GS running iOS 5.1 with iTunes 10.6, and I'm no longer able to use Personal Hotspot (tethering) via USB, which worked fine last week with the previous versions (iOS 5.0.1 and iTunes 10.5.3). Bluetooth tethering is fine with iOS 5.1 and iTunes 10.6.
Some additional data points which I haven't seen mentioned yet:
1. I'm running Mac OS X 10.6.8, so the problem is not unique to iTunes 10.6 running on Lion.
2. I tried restarting my Mac, in case the driver installed by the iTunes update hadn't loaded correctly. It didn't help.
3. I tried my iPhone with another Mac (also Mac OS X 10.6.8) which was still running iTunes 10.5.3 and had never used an iPhone for tethering. On connection via USB, the Mac reported that it had found a new network interface. I went into System Preferences and did an "Apply" to confirm the change to network preferences, and ensured there were no other active network connections. iPhone was listed as a network interface, with a red status indicator, and the USB tethering connection didn't work.
Combined with evidence earlier in this thread, this strongly suggests the problem is with iOS 5.1 running on any iPhone model, and is independent of the iTunes and Mac OS X version. maclucassen's suggestion of testing tethering using an iPhone running iOS 5.0.1 with a Mac running iTunes 10.6 would be useful data for further confirmation that it is a bug in iOS 5.1.