PwnageTool may also ask you for Bootloader code. It didn't ask me, possibly because I'd already placed the files on my desktop.

Options for advanced users
I waited about five to ten minutes while the utility did its stuff, only to have PwnageTool tell me my iPhone wasn't in DFU mode. I went through this process a couple more times before I spotted a note on the iPhone Dev website that if you see a 'failure to prepare x12220000_4_Recovery.ipsw' error, you need to add a folder called Device Support into the iTunes folder within the Library folder that's part of your Home folder.
I opened PwnageTool's log drawer and, sure enough, that was the message I was getting at the end of the process.
Moral: read forum posts thoroughly before proceeding, and make sure you click PwnageTool's Log button so you can monitor what's going on.

Expert mode continued
I created the missing folder and had one more go. This time it worked as anticipated - PwnageTool told me to turn off the iPhone then guided me through starting it again in DFU mode, so I probably didn't need to do this first.
Once again, iTunes told me the iPhone was in recovery mode, and this time, after clicking OK, I clicked on the Restore button while holding down the Alt key. This lets you manually select the firmware restoration file - I chose the one on the desktop put there by PwnageTool.

Here goes...
iTunes copies across the tweaked firmware, verifies it and installs it. The handset restarts, and runs BootNeuter 2.0, which adjusts the phone's start-up code and its baseband software. When it told me it had done so, it immediately rebooted the handset.
Once it had started, the iPhone immediately connected to my network. Rather than restore the phone's contents from a back-up, I chose to treat it as a new device and sync over data, music and movies afresh.
So far, for me, it's all held up, and I've even downloaded a couple of freebies from the App Store, all without a hiccup. Still, using PwnageTool isn't as easy a process as ZiPhone made unlocking the old iPhone. And some users have had problems getting the app to run at all. If you choose to proceed, do so with caution.
Related Review
Apple iPhone 3G
iPhone 2.0 unlock tool released, tested
COMMENTS
Stuck in Limbo
I have a non-3G iPhone that was unlocked. After updating iTunes to 7.7, I accidentally hit some update button in iTunes and it downloaded and installed iPhone 2.0. It became useless of course.
I tried running Pwnage 2.0.1 to no success. When trying to do the custom restore, iTunes says, `The iPhone "iPhone" could not be restored. An unknown error occurred (6).`.
When I try to re-run Pwnage, I can't get it to shut off to go into DFU mode. It keeps rebooting into Restore mode (with the iTunes logo and USB pointing to it).
I tried to use ZiPhone with it, but it can't find the iPhone even though iTunes can.
What next?
@Chris
I was thinking more along the line of:
Mac Guy from PC/Mac ads: 'I'm an iPhone, I can do anything Steve Jobs thinks I should.'
Keanu Reeves: 'I'm Neo. I know Kung Fu.'
Who IS Webster Phreaky?
Here's the little Mac Phreak
http://profile.myspace.com/index.cfm?fuseaction=user.viewprofile&friendid=158300923
Unlock tips
Just to clear things up as I got stuck on this for about 2 hours. If you need to unlock your phone, make sure you say you are NOT a legit iPhone user. I honestly thought this was a joke and hit yes 3 times, and didn't know why it wasn't unlocking the phone.
And again, if your phone is in DFU mode you will NOT see the connect to iTunes screen, it will just be black! You can do this by, Holding the power button and home button at the same time, count to 10, on 10, release the power button and hold the home button for another 10 seconds. If you did it right, your iphone will be black, and iTunes will prompt you for restore.
@Henry The point of jailbreaking your iphone 3g is not so obvious at the moment, but in the very near future you can expect to see applications use parts of the phone that is not available in the SDK. For example, background processing could be hacked in, but only with a jailbroken phone and many other internal "Apple Only" things could easily be extended once your device is jailbroken.
Also, Why is that I have to fill out 15 field form to write a comment? Email validation is already pushing it. In addition, I did not want to be a part of the newsletter so I unchecked opted out using the checkbox. Upon the submit, I had an error, I quickly fixed it and submit again, before it posted I noticed that the checkbox had defaulted back to checked. Not very nice.
Erm.. value?
So - the review is of something that is generally accepted to be do-able anyway. The biggest piece of news surrounded the 3G version but that wasn't tested.
Still good to see. It looks like this will be the only way I can get an iphone, ironically to use with O2. As an existing customer, they still won't let me get one until my contract expires - 4 months away. Gits
