I've been having the same problem as everyone else here: updated my iMac running 10.7.3 to 10.7.4 and the internet sharing stopped working:
The signal is recognizable by an iPhone, an iPad and an Android and all can connect to the wifi network. However, the internet connection either doesn't work at all or works intermittently and then cuts out all together.
I just spent an hour with Apple Support (in Japan, where I'm located) and we tried a number of things together:
1. Reset the SMC:
- turned off the computer
- unplugged all devices from the back of the computer
- unplugged the computer from the wall
- held down the power button on the iMac for 5 seconds
- restarted computer
Outcome: Problem Unresolved
2. Installed the Client Combo version of the OS update available here: OS X Lion Update 10.7.4 (Client Combo)
- downloaded dmg from apple home page/support/downloads as per link above
- ran dmg and open package to install
- restarted computer
Outcome: Problem Unresolved
3. Changed the Name of the Network and Channel of the Wi-Fi Network
- open System Preferences on iMac
- open Sharing
- turned off Internet Sharing, selected Wi-Fi Option which opens "Configure an internet-sharing network"
- changed Network Name
- changed Channel, clicked OK
- checked Internet Sharing to turn it back on
Outcome: Problem Unresolved
4. Changed the Security Settings Wi-Fi Network
- returned to "Configure an internet-sharing network" as above
- kept Security at 40-bit WEP, changed password name (5 digit)
- changed Security to 128-bit WEP, tried a different password name (13 digits), clicked OK
- checked Internet Sharing to turn it back on
Outcome: Problem Unresolved
5. Removed Security from Wi-Fi Network
- returned to "Configure an internet-sharing network" as above
- turned Security to "None" by selecting it from the dropdown, clicked OK
- checked Internet Sharing to turn it back on
Outcome: Problem SOLVED - internet sharing works to give me a Wi-Fi signal that my other devices can use to consistantly connect to the internet
Of course, the problem isn't actually solved as it is not a good idea to share your signal with everyone in close proximity.
Apple has my data and promises to get back to me with a better resolution within a week. I'll post details here when I get them.
Hope this helps...