That's a very old firmware, the new ones will probably have significant updates and loads of extra things. I'd recommend that you upgrade to 3.1.2. I think the newest version is 4.0.2 or something like that but it runs rather slow in my personal experience so I downgraded back to 3.1.2.
I'm not exactly sure what the best way to upgrade is, but the way I've been doing it is by putting the iphone in dfu mode and then plugging into a computer. Itunes will then detect your iphone in recovery mode and says you need to restore it. You then have to shift+click the restore button, and then select the firmware file (3.1.2) to load onto the iphone. There are plenty of places to download the 3.1.2 firmware package online. If you just click restore without shift itunes will probably try to download the latest firmware and load that on, which could be bad. Once you have 3.1.2 installed, you're going to need another program to kick your iphone out of dfu mode. I forget what it's called though. After that your iphone will be successfully updated to 3.1.2 and you can proceed to rejailbreak and unlock it. You can use spirit and probably jailbreakme.com to easily rejailbreak, and unlock with ultrasn0w or blacksn0w or something like that.... I forget which one. It would be best to look up a guide online, and make sure you check the comments for ultrasn0w/blacksn0w. One of them commonly puts your iphone into a reboot cycle and the other one works fine, I'm sure you can figure out which is which by the comments.
That's what I'd do with a 3g or ipod touch 2g/3g. I don't have much experience with the 1g iphone but since it's an older model it should work about the same. It would probably be better for you to look up a detailed guide online, mine's just a sort of summary.
