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dnsmasq-base has to be installed:
sudo apt-get install dnsmasq-base
sudo apt-get remove dnsmasq
sudo /etc/init.d/network-manager restart
Set encryption to WEP 40/128-bit Key with a 13 characters key. (Note: You may have to experiment here according to what type of encryption with ad-hoc the device supports. WPA is not supported).
NetworkManager now should connect to itself (which means it creates the ad-hoc wireless network and routes any Internet traffic to your wired network interface). Now, connect with the client(s), and you should have a working Internet connection.
You have to make sure that this connection is shared to other computers and devices (clients). Make sure that the Connect automatically check-box is selected and on the IPv4 Settings tab make sure that the Method option is set to "Shared to other computers".