Instead of the usual Wifi menu in the settings menu, it is replaced by Personal Hotspot which is also greyed out. It is on 5.0.1. It can connect to 3G perfectly fine however.
Before my iphone 3GS i owned a 3G with a broken wifi.
Turns out that with the old update from OS 3 to OS 4 the processor heats up too much and burns the wifi card, later updates fixes this problem.
But for me it was too late
Maybe this is what happend, hope i could help.