The new 2.0 version of iPhone's software lets you download and install applications from the iTunes store. However, a lot of applications I want don't exist there. Good news open source fans. You can still jailbreak iPhone 2.0, thanks to the iPhone Dev Team. Watch our video to see how it's done.
First of all, this is not a newbie-friendly exercise. You must back up your data and be prepared to have to restore your phone from scratch. If you're not comfortable with uncertainty, you might want to hold off of doing this. It also most likely voids your warranty.
Why would you go to all this trouble? For me it's the capability to run applications that don't get approved by the official Apple apps store.
Also, I'm telling how to do this in Mac OS X. The Windows procedure now has it's own tool called Winpwn. First, you need to gather a few downloads. Make sure you have upgraded to the current 2.0 firmware in iTunes, and know where it resides.
Then download the Pwnage tool and the bootloader software. You can find the latest links at the iPhone Dev Team's blog. Extract both of these and move the bootloader files to Documents. You'll need an extractor that can handle RAR files. May I suggest The Unarchiver as an open-source solution?
Now launch the Pwnage application and follow the prompts.
It should find your current firmware. Select and press the arrow.
It will either ask you for the bootloader files or find them for you as it did for me.
It will prompt you to create a new custom firmware. Press yes.
It will ask if you are a legit iPhone. Press Yes if you're on AT&T, or press no if you want to unlock the phone.
It will build your custom firmware called an IPSW file and it will take a bit so go eat some fudge or something.
Once it's done it will ask if your iPhone has been pwned before.
If you're going from a pwned 1.1.4 say yes, otherwise say no. In fact, if you have any doubt, just say no. It won't hurt to repwn it.
Now come the calisthenics. Follow the onscreen prompts to turn off the phone. Then follow the prompts exactly. Hold both the power and home buttons, then let go of just the power button and finally the home button when it tells you to.
If all has gone well, you should get a success message.
Close pwnage and move to iTunes. Here you'll restore your iPhone with the newly made firmware. Hold down the option key while you click on the restore button. Find the firmware file iPwnage created. It's the one with custom in the title.
Your iPhone will restart. Give it time. Don't freak out. It will then restore the phone's backup. Then it will sync.
Now you have the Cydia open source app installer as well as the newfangled official Apple App store. It's the best of both worlds.