Tifel, a poster on the iPhone Dev Elite forums has posted a step-by-step solution for restoring full functionality to iPhones that were unlocked under firmware/software 1.0.2 then "bricked" -- phone functionality completely disabled -- by the iPhone firmware/software 1.1.1 update.
The 18 step process is not for novices, and requires the use of iNdependence, ieraser2, and familiarity with things like DFU mode. Fortunately, most of these terms and tools are thoroughly explained on the iPhone Dev Wiki. Also, phones that undergo this process will be left with firwmare/software revision 1.0.2 and cannot be re-upgraded to 1.1.1, though they will again be functionality.
Apple changed the encryption methodology for the iPhone with the 1.1.1 firmware/software update, meaning that old processes for "jailbreaking" the device ? putting it into a mode where files can be written to and from the phone ? became defunct. What this meant for unlocked phones is the following: these devices can be upgraded to version 1.1.1 of the iPhone software, and apparently remain unlocked. However, the phones could not be reactivated ? a step that is necessary for normal function ? after the update by traditional third-party means (iActivator, etc.), nor jailbroken. In addition, because the software unlock mechanisms changed the IMEI number (a special code used to identify the mobile device on a network), they could be re-activated using an AT&T SIM card. In other words, these phones were dead in the water with regard to phone calling functionality.
Now, however, a successful software/firmware 1.1.1 jailbreak that is easy enough to be feasible for most users and does not make use of a security exploit has been published, along with the aforementioned unbricking technique.
Cat, meet emboldened mouse.