OK I finally got this working. Here is what I did to spell it out.
1) make sure you have the latest wireless tether app from market. Do not use the experimental like previously stated cause it doesn't have the blue tooth in there
2) configure the wireless tether app to use blue tooth and not wifi
3) turn on bluetooth and discovery on the OG Droid
4) discover the of droid from the xoom and pair both
5) now turn on the wireless tether (bluetooth) on the of droid
6) now back on the xoom, click the wrench on the droid paired line and select the tether profile. It should connect and show a larger bluetooth icon down by battery.
You should now be working. Cheers!
Sent from my Xoom using XDA App