Assuming the SIM fits, you could try blau.de. It runs on e-plus nets, so the coverage can be spotty, but you can buy the SIM card (normal size) practically anywhere in Germany (in grocery stores, train stations, etc). You get the SIM card for 10 euro and it includes enough money pre-loaded to get 1GB of data. No contract, but you need internet access to register the card, so find a Starbucks. You need the APN info or whatever the credentials are called, and they're also online under FAQ on their website (blau.de). If you can't read German, you might have difficulties registering and finding the APN creds. Anyway, it's cheap and prepaid, but if you have iPhone 4 you either need to cut the card down or order a mini SIM on their website. Here's the site for the micro-SIM (13 euro):
Tethering is expressly allowed. I'm using blau in my 3GS right now, so it seems to work fine. You also need a German street address to register online. They don't verify it, as long as the place actually exists. Once again, if you don't know German, navigating the registration process and FAQ screens will be difficult. Google translate might work, but I can't promise that.
1GB of data for a month costs 10-13 Euro and that includes the card. No other SIM will be cheaper, but you might find one with better coverage.