I've seen a lot of posts and notes about this topic over the internet and non of them could solved my problem completely,they were partially helpful but not entirely helpful. there were tons of complains about this matter and a lot of users seemed unhappy because simply they couldn't share their Internet Connection over airport or wifi with their iPod Touch. After a long and tiring night I finally figured out how to get it right and I decided to share this experience with all the Mac users gladly.
Ok, what I have is a MacBook with OS 10.5.2 installed and my Internet connection is through cable modem and it's a Ethernet Connection and I shared my Internet through Airport with my iPod Touch.
I assumed your Internet Connection is fully established and you can surf the web with your MacBook.
you go to System Preferences and under the Internet & Network, you go to Sharing,Turn On Web Sharing and Internet Sharing,in the Internet Sharing you have to choose to Share your Connection From +Ethernet+(in case you get your Internet Connection from Ethernet of course) To computer using Airport .
And then on your iPod touch you go to Setting and the Wi-Fi,you should see your computer name there,choose the network and then press the ">" sign in the blue circle,you should see your IP Address which probably is 10.0.2.2 . What is important here is your DNS which probably should be something like this format 10.0.2.1
you go back to your Mac and System Preferences>Network>Airport you should see your Computer's Name in the Network Name field, you go to Advanced>TCP/IP and write down your IPv4 Address, go one step back which is System Preferences>Network and this time you go to Ethernet>Advanced>DNS on the right side,there is the list of your DNS Servers,you add your DNS number form your iPod Touch and your IPv4 from your Airport configuration and that's it.
you should be able to browse internet from your iTouch by now.
And for all the IP stuff,you let DHCP handle it Automatically. I did it and it works fine for me and the speed is pretty good too and there is no need for a wireless router. You can share your Ethernet Internet Connection Easily from Airport to your iTouch.
I hope this post will be useful for ones struggling with this problem.
keep it cool
Thanks for this. I did this unsecured and it didn't work until I added a password. I don't know if that had anything to do with it or not, maybe just turning the internet sharing on and off a few times did it. Anyway, I wanted it secure. Also I am using this so my iPad can get on the internet thru my Airport Express WiFi that has no internet connection. So it goes thru my Mac-Mini that has access via a 3G stick plugged into a USB port. (No AT&T service at my cabin) I am so happy now, thanks again, and again.