How to resolve that both Wifi Hotspot and USB Tethering need reboot to work?
I to am using my phone as a 3G modem and sometimes this happens when I messed up some settings in the phone. I just clear the Settings data on my phone and it returns to normal.


Open Settings app
Go to Apps
Go to ALL tab
find the Settings app
open it and Clear Data
try tethering again


this usually fixes the wifi dropping while tethering issue on my xperia play
If your internet keeps timing out while you're connected then it might be also a network issue, or your phone automatically disconnecting from the network due to inactivity. If you frequently take a break using the internet but like to keep the connection alive then I'd recommend using a pinger