Originally Posted by jefette
Follow the below steps and you are all set no worries:
1- shutdown your iphone with the hard reset "home button and power for 10 second"
2- connect the usb cable to the pc but NOT to the iphone"
3- open itunes
4- while the iphone is off, press the home button for 5-10 seconds then plus the other end of the white connection cable into the iphone
5- do not remove your finger from the home button
6- itunes will detect it and you can now restore it
7- finally you need to jailbreak it again..follow the web instructions
To swainclubber and others who are still having this issue:
There is a minute change to the steps outlined by jefette. So follow these updated steps:
Plug one end of the cord into your phone and the other in your computer
Remove the cord in your computer, leaving the cord in the phone still plugged in
Hold both the home button and on/off button on the phone
Once the screen turns off, let go of the on/off button but continue holding the home button
Plug in the other end of the cord in your computer while still holding the home button on the phone
Once the apple logo appears, continue holding until you see the plug into iTunes screen on your phone
Click restore
This worked for my original unlocked iPhone (2g) and should work for all versions of iPhones. I just got my flashy 3GS so I'm selling my old 2G. After I reset the entire content of my 2G I came across this issue but thanks to the original poster of the following link it is resolved.
I found this solution from the following link:
http://discussions.apple.com/thread.jspa?threadID=2088600&tstart=30
Anyways thanks to jefette and the original poster of the above link.