1. Put the phone in DFU mode
2. Restore 3.0 firmware
3. Get error 1500 when finished
5. Hold BOTH the Power and the Home button for 15 seconds
6. Let go of both buttons
7. Press and hold the power button again for 2 seconds
This may need a few attempts (5-7) but then it should work.
BUT you will need to do steps 5-7 even if you restore the same firmware again.
Okay peeps, I got it and it's simple. I don't know what the error 1500 is, because I did not see that.
Note: This is for 2G only. I repeat 2G (1st Generation iPhone) (aluminum back). If you've upgraded to 3.1 accidentally you will not see any restore button in iTunes, thus the headache. So, to downgrade back to FW 3.0 so you can jailbreak and unlock:
Note: This method was done on a Mac Mini, running Tiger 10.4.11
1. Put phone in DFU mode (instructions available elsewhere)
2. Connect to iTunes 8.2 (you should now see a restore button)
3.a Option-restore, I repeat, option-restore (hold down option then click restore) and navigate to a valid FW 3.0 custom restore file
3.b The restore file, Bl 3.9 and Bl 4.6, and redsn0w you should already have in a folder, see:
http://www.iclarified.com/entry/index.php?enid=4304
4. This should successfully downgrade your 2G phone
5. Run redsn0w, follow the instructions, and do not interrupt, this will take a while, make sure your battery does not run down if doing it from a laptop.
You're done!
Similar instructions may, or may not, work for iPhone 3G.