Problem solved... after much looking to figure out what the problem was I noticed that when I installed DM SP1 that it still had the previous version still listed in add/remove programs.
- uninstalled all DM instances
- rebooted
- installed DM SP1
Both BT and USB connections now work as modem!

Sooo, I guess the rule of thumb here is to always uninstall DM before upgrading to a newer version...