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The performance of IEEE 802.11b devices is significantly impacted by the interference from Bluetooth devices that operate in close vicinity. The paper studies and evaluates the performance of 802.11b and adaptive frequency hopping enabled Bluetooth in a more realistic channel model. The probability of error at MAC and PHY layers of 802.11b is found. We consider various cases such that when one, two, or three 802.11b channels are occupied. The numerical results indicate that the throughput performance of the 802.11b system degrades as the number of bad channels and Bluetooth piconets increase.