Do the following:
1) Open Settings->Internet Sharing. Enable IS for Bluetooth PAN.
2) Change HKLM\Comm\ConnectionSharing\PrivateInterface to "TIACXWLN1" (for the Hermes). It should currently be "BTPAN1".
3) Open Settings-> Connections -> Wi-Fi. Select Network Adapters tab. Click IEEE 802.11b/g Compatible Wi-Fi.
4) Enter IP address 192.168.1.1 and subnet mask 255.255.255.0. Click OK.
5) Select Wireless tab. Add New.. to add the Network name for your ad-hoc network (I prefer "adhoc")
6) Set the client computer to use the same ad-hoc network. Client will receive an IP address from the device (don't need to manually set the IP).
And it works!
Interestingly, while IS was enabled, wifi stayed on and connected when the phone went to standby mode. Normally wifi turns off to save battery during standby. I imagine this will drain your battery in a hot minute, so bring your charger.
UPDATE (28-Oct-2007): Attached are some more beta releases of patched intshare.dll. I've created versions for most of the adapter names people have requested. By renaming this dll to intshare.dll and copying it to \Windows, Internet Sharing will use TIACXWLN1 (or whichever dll you use) when Bluetooth PAN is selected. I.e., if you use this, you will not need to make the registry changes above.
This will handle the registry part, but of course you'll still need to set up the ad-hoc network on your own.
UPDATE (03-Nov-2007): I've attached a beta version of the patched Internet Sharing app. It's in its own cab so it won't overwrite your existing IS. This app replaces Bluetooth PAN with 802.11b/g Wireless Ethernet. No registry hacking required. This app is well suited to replace the MS version on cooked ROMs.
If you use an adapter other than TIACXWLN1 then replace intshare.dll just as before.
UPDATE (08-Nov-2007): Attached is v 0.9.1 of the Internet Sharing Mod. This update addresses the 10 minute disconnect bug most people have experienced.