I am referring to android-wifi-tether (android-wifi-tether - Project Hosting on Google Code). It is still in Beta and not available from the market. Just browse to it from your droid, download and install.
I have also used Barnacle, but recent versions stopped working. I can't remember if Barnacle had the same issues as wifi-tether.
It is probably worth investigating again.
I believe all wifi tethers require the phone to be rooted.