In a posting on the iPhone Dev Wiki, iPhone hackers posted instructions for downgrading the iPhone’s firmware from version 1.1.1 to 1.0.2. The downgrade restores iTunes and Wi-Fi capabilities, but the call-making functionality cannot yet be restored. Hackers have yet to find a way to downgrade the firmware used by the iPhone’s baseband chip, which is used to make calls.
Apple’s latest update includes much better firmware encryption, which is making current research into unlocking version 1.1.1 very difficult. The earlier unlocks were much easier. According to Tom Ferris, a security researcher working on the iPhone, everyone is working on trying to get into the firmware. The iPhone-unlocking business really has turned into the cat and mouse game Steve Jobs talked about.