Why is my iPod touch able to see my iMac as a wireless router but can't actually share the connection properly?

So I've set up Ethernet Internet Sharing via my iMac, and my iPod Touch and other devices can see the network. I type in the password, it succeeds but instead of a tick appearing I get the grey loading wheel forever. Why can I 'connect' to the network but not actually gain internet access? I've even tried no password and the same thing happens.

Thanks for your time.