Setting up wireless hot spot on Lion, DHCP issues
Ok, got it. Upgrading Extreme to 7.6.3 might have been the root cause, but in addition I set up two wireless nets rather than one. Here is the set-up

CableModem -> Airport(Spaceship) running 11g serving DHCP values above 10.0.1.100 but accepting 10.0.1.xx with subnet mask. 11g given an obscure (private) name for the wireless account.

Spaceship -> Mac Mini via wire. Mac Mini with fixed address of 10.0.1.2

Mac Mini running internet sharing on 11n. Every wireless in the house able to connect via 11n. The 11n given a different (public) name for the wireless account and that's the wireless I tell friends visiting house.

AirportExtreme -> running in bridge mode, connecting via WDS to Spaceship, reading the 11g. Output on wire from the Extreme going to BoxWithNoWireless

BoxWithNoWireless requests DHCP and gets served an IP address from the Extreme.

Once all in place I did need to reboot the cable-modem too. Not sure why.

Not as clean as running a single 11n everywhere, however, and the BoxWithNoWireless is going to be running Netflix, etc, so I was really hoping to get 11n. But this at least gets me up-and-running.