"I was finally able to reboot using the snow leopard CD, and then do a restore from time capsule. For some reason, completely unknown to me, I am no longer dropping my Wi-Fi connection. It has been three days now, and it has not dropped once since I restored. Absolutely clueless why this would be the case since I restored from a time point when the system was having the problem."
Now that is interesting. Before this happened, my iMac (10.7.3) would occasionally fail to share the internet - probably on about 10% of startups. A restart would always fix it, and I never really bothered about it too much, just assumed it was a glitch of some sort since I could always gets it working within a minute. But since the 10.7.4 update killed it completely and forced me to revert to 10.7.3 from Time Machine, it hasn't done this once - in probably twenty or thirty startups.
So could it be something in the way the 10.7.4 updater replaces or moves files? I don't know enough about this to have any clue if this is right or not!
But it makes me wonder that if your system is broken under 10.7.4 and you don't have an older backup available, whether backing up *now* and then restoring from this (apparently faulty) backup might fix it?