Thanks. OK. I don't have an option to backup my iPhone in iTunes if I right-click it. Maybe because I'm still running iTunes 7.4.2? But in ~/Library/Application Support/MobileSync/Backup there is a folder that was modified today, when I synced my iPhone.
What version of iTunes should I install?
If I install a new version of iTunes won't I risk that it will re-lock my jailbroken, unlocked v.1.1.1 iPhone? That's the reason I'm still running 7.4.2
If something goes wrong, can I restore it back so it's completely like it is now?
I've upgraded my 2G iPhone to 3.0 and jailbroke and unlocked them. 3.0 runs very slowly, even without any Cydia apps installed. Push notifications aren't working, and P2P games aren't even supported! It's blindingly obvious that Apple is just very slowly phasing out the old phones, though they are still perfectly usable ones! Perhaps Apple should just release a new "iPhone S"!
Not slow for me, something else must be wrong. Try not restoring any backup. I have a 2g and 3g and they both seem to run about the same speed and definitely faster than 2.2.1.