Will I get in trouble with Verizon if I use the wireless tethering with my rooted Droid 2 without paying for it?
You shouldn't get in trouble, regardless of how many gigabytes of data you chomp through. They can only find out if you tell them, or they physically gain access to your phone.
Can you rebroadcast a wifi signal, using the wireless tether app? Or can you only use wireless tether to broadcast your 3G signal?
As far as I'm aware it rebroadcasts your data connection, be it 3G or WiFi, but you'd have to set it up NOT to kill your WiFi connection when you turn it on. However, the range you'd be getting would be paltry compared to a real extender.
Is there just a setting i have to enable in order to prevent it from killing my wifi connection? And why would it be paltry in comparison to a real extender?
Broadcast power. Extenders broadcast in the watt range, some of them (depending) up to 4 watts; the D2 would only broadcast in the sub-watt range; I really can't see it broadcasting more than a watt due to battery concerns. Someone please correct me and back it up if this is not the case.
Open WiFi tethering app from my signature (I don't know if the one in the market is up to date enough), hit the menu button, at the bottom of the screen (in portrait mode) should be "Don't disable WiFi"