You don't need custom firmware.
Try following the following steps, which take you through reinstalling and re-unlocking your phone. Set aside an hour or so:
1. Download the 3.0.0 AND the 3.0.1 files for the 2G iphone from here:
http://www.iclarified.com/entry/index.php?enid=750
It is the lines labelled
3.0.0 (2G): iPhone1,1_3.0_7A341_Restore.ipsw
and
3.0.1 (2G): iPhone1,1_3.0.1_7A400_Restore.ipsw
put them in a foldfer on your desktop called Pwnage.
2. Put the phone into DFU mode like this:
http://www.youtube.com/watch?v=ofpinyGlQ8I
and when iTunes tells you it needs to restore, hold the Shift key (Windows) or the Option key (Mac) and it will open an explorer window. Browse to the desktop and select the 3.0.1 file you just downloaded. Let iTunes retore the phone. Don't go on to the activation step.
3. Use this tutorial to unlock and jailbreak your phone. In both cases, SKIP STEP 2 - you have already done it. When you get to Step 2, just scroll down to Step 3 and carry on:
http://www.iclarified.com/entry/index.php?enid=4302 (Windows)
or this one
http://www.iclarified.com/entry/index.php?enid=4304 (Mac)
Your phone should now work OK.
(And just in case you run into a fairly common problem running Redsn0w - if RedSn0w hangs up at "Waiting for Reboot", just unplug the cable for a couple of seconds then plug it back in again.)