the best, and most efficient, method of sharing an internet connection is with a router.
Preferably wireless so that the iPhone can use it easily.
May even solve your iChat problem
My iMac C2Duo 20" gets error messages when attempting a Video Chat in 10.5.8 with iChat 4.0.8. If I boot up from FW drive using 10.4.11 everything works.
When I initiate a Video Chat, after a while I get a pop up "There was a communication error during your chat. (recipient) cancelled the connection."
When I ACCEPT a Video Chat invite, I get a pop up "There was a communication error during your chat. Did not receive a response from (initiator)."
I should mention that there is also a networking problem in 10.5.8 that disappears if I boot up from the FW drive with 10.4.11. The Internet Sharing will randomly stop working for no apparent reason. I'll be connected to interenet using iPhone 3GS or old iBook G4 running 10.5.8 and suddenly I'm "no longer connected to the internet". Sometimes stopping and restarting Internet Sharing solves it for a while, sometimes it doesn't. Sometimes it will work for days, other times for minutes or quit overnight.
All help very appreciated.