Not sure what you are trying to do, I just tested the WIFI tether app to two devices (OG Droid1) that are WIFI only and connected to the internet... googled, checked email, update market apps and it works! Now if your trying to download chunks of data or stream video, maybe their's a limit, IDK. But the app works for me!
I just thought of something, are you running WIFI tether while using juice defender or data saver on?
Also, you could just go for FoxFi on the market some peeps in the link below seem to like it.
Free wifi tethering app