Future iOS update is going to address this ....in the meantime you need to prevent personal hotspot from assigning dchp automatically by doing the following....
You've just set a manual IP with DHCP, circumventing the DHCP servers automatic assignments which seem to be the source of the connection troubles. Exit out of Settings and enjoy Personal Hotspot as usual.
On a side note, you may be able to temporarily remedy the solution by renewing the DHCP lease or resetting network settings on the iOS device, but in our experience it will eventually suffer from the same dropped connection and packet loss. Thus you'll want to go with the static IP approach, it works.
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