I have found a way around this. It seems that when you use the SP2 built in drivers windows doesn't seem to enable ICS for this. there are 2 ways around it.
1. install the microsoft loopback network driver by starting add new hardware and selecting choose from list and then network adapters and then microsoft loopback.
2. reinstall the origional bluetooth driver stack and control program that came with the adapter. Using this methode
http://www.mp3car.com/vbulletin/showthread.php?t=35927 . You do NOT have to download the patched drivers just fllow the instructions on how to reinstall widcomm drivers.