If you are restoring to custom Pwnage ipsw your phone should already be in DFU mode since you need a DFU iPhone to create the ipsw and then for iTunes to recognize your phone as an "empty" phone or whatever the word was that it used.
+ If any of that up there didn't make sense here's my "guide" to jailbreaking with Pwnage. Hope this helps
iPhone 3G 3.0 Jailbreak!!
Okie okie so jailbreaking 3.0 is such a ****ing hassle but once it's done at home pretty much easy peasy!
So here's instructions that are relatively idiot proof:
1 ------ So first go to:
http://www.modmyi.com/forums/iphone-news/635661-how-jailbreak-iphone-firmware-3-0-pwnagetool.html
Download Pwnage + Firmware and follow instructions.
2 ------ THEN - don't sync your applications yet, I had tons of cracked apps and waited but it doesn't sync... since obviously you need another program. So now go into Cydia:
Click on "Manage"
Tap ''Sources''
Choose "Edit"
Choose "Add"
Type "http://cydia.hackulo.us"
Tap "Add Source"
Wait....
Back to Cydia
Click "Changes"
Press on AppSync 3.0
Install at own's risk....
Wait some more.............
Reboot...
SYNC AWAY
Dont worry this actually works well.. I tested it!
For pretty pictured guide:
http://hackulo.us/idiotsguide/viewarticle.php?a=addhackulous
Now, for a simpleton with a life... these steps would give you a jailbroken iPhone that will be able to use cracked apps installed from your iTunes directly.