I rooted my Droid and got Froyo working on it (Bugless Beast).
What is the best way to enable Wifi Hotspot on this thing?
I tried an app "Wireless Tether" which allows me to connect my Mac via Wifi, but it doesn't assign a valid IP address to it.
That app is really your best (and maybe only) choice. Try resetting (or maybe reinstalling) the Wireless Tether app and try again.
If that doesn't work, you may need to set a manual IP on your Mac.