When iTunes 10.7 was released, it broke the USB tethering to the iPhone in Snow Leopard (at least).

The problem seems to be the new version of the kernal extension '/System/Library/Extensions/AppleUSBEthernetHost.kext' which was replaced in that iTunes upgrade.

I found version 2.3.0 of that extension in my !TimeMachine backup. Replacing the 2.3.6 version with that one fixed the tethering issue. So far, iTunes 10.7 seems to still be working. I'll keep my fingers crossed.

Note: to do the replacement, I used 
{{{
sudo mv /System/Library/Extensions/AppleUSBEthernetHost.kext {someSafePlace}
sudo cp -r {pathToOldVersion}/AppleUSBEthernetHost.kext /System/Library/Extensions/
}}}