if you load your iPhone with a restore file which was jailbroken with pwnageTool, it should work.

Excellent guide Whiteiphone, PC user here so I'm hanging out for Winpwnd and also by the sounds of things at the moment there really isn't much point jailbreaking your 3g as there's nothing in CYDIA to load onto it (or am I wrong)?

Any idea of the pwnage settings for the ipod touch

You'd think so, wouldn't you?
But ask yourself why Pwnage asks you if you've previously pwnd your iphone. just like earlier versions it's a 2 step process. first the device has to be pwnd then you use the custom ipsw

No errors?

That is also the most painful thing to read, ever. Otherwise, excellent guide

blog.iphone-dev.org "Update 5" helpfully clarifies about pwnage sequence of events and options, including doing the pwning of the device in 1.1.4 with Pwnage Tool 1.x and then using a custom ipsw, previously built in Pwnage Tool 2.0, to simply do an iTunes restore using option/shift-click restore with that pre-built custom ~restore.ipsw.

If DFU restores are giving you trouble, another route to pwned 2.0 for 1G owners is to use our first pwnage at 1.1.4. Once you are pwned there, you can do a normal recovery-mode restore to your custom 2.0 ipsw. BTW the iPhone does *not* need to be pre-pwned to be able to DFU-restore into a pwned ipsw — it needs to be pre-pwned only for normal recovery-mode restores of custom ipsw’s.

meaning you just put your iPhone 3G into DFU mode, connect to iTunes then shift/option and load up the custom_restore file

even if your iPhone has been pwned and you press no in step 17 it does nothing

hmmmm...
*rubs chin*
maybe you have a point.

but ill still wait until someone else tries it first :P

Oh cool, so a DFU restore with a PWN firmware now means it'll work. so all we need to do is upload our FW to rapidshare

meaning also if your iPhone3G has been already pwned then you do not need DFU mode at all, if already pwned fully and successfully then just have it in working mode (or normal recovery/restore mode) and option/shift click the restore button in iTunes then browse to that custom iPhone1,2[3G] ... 5A347 ... Custom Restore.ipsw .
NOTE THAT iPhone1,2 ... 5A347 ... is very different to iPhone1,1 ... 5A347 ... .

1,2 ... IS iPhone3G ONLY!!!!!!

1,1 ... IS iPhone first generation original GSM (1G) ONLY.

ok I'm going to ask a silly q here - what does this allow you to do on your phone you couldnt before?

Third party apps that are not or could not be available on the official App Store.
This applies to iPod touch, iPhone 3G and first gen iPhone users.

For first gen iPhone users, 2.0 firmware and unlocked status.

The unlock for 3G iPhones is coming though, but for now 3G iPhone users are jailbroken if they wish. The same goes for iPhone and Touch users.

The most important thing though? 2.0 firmware on 1st gen iPhones. And unlocked.

Will Jailbreaking void the warranty?

no.
if you need to sent your iPhone back under warranty just restore it from the factory file from itunes.

Well, if you walk into an Apple store and ask them to fix your iPhone, and they can see Cydia and other unsanctioned apps running... they're not going to like you very much.

You can still perform a restore and get it back to factory settings if you want to wipe the device down (EDIT: which is what WhiteiPhone just said).

But if you want my answer, then 'yes' it does void the warranty because it is Apple unapproved. Whether or not you can cover this up, later on (e.g. restore) is another matter for warranty claims.

Basically if you're going to bring it in for repairs or whatever, get rid of your jailbreaking steps. And if you're using a 1st gen iPhone, don't even try to get it repaired in Australia via official channels since it was never sold here.