I used redsnow to jailbreak and unlock 3.0 on iPhone 2G yesterday and it works A-OK.
Couple of points to add for the instructions posted by Vinay above
1. Use Itunes to backup your data first
2. For iphone 2G, you need to restore (basically format) to the 3.0 version. (shift + click on restore in Itunes). Choose the 3.0 software downloaded earlier. I suggest you use this option. Otherwise Itunes will try and download a 250MB file and I'm sure none of us have a superfast net connection.
3. After restore, follow the steps using Redsnow.
4. After its done, use Itunes to restore the backup.
It did hang a bit after the unlocking when I tried to restore the backup from Itunes. But a hard boot solved the issue.
Backup your songs separately as they will be wiped out after these steps.
Any other apps installed earlier like OpenSSH, Bossprefs will have to be reinstalled again - which is not a big deal.
Rest of the data (sms, contacts, notes, bookmarks etc) will be restored by Itunes in the last step.
Its working great on Vodafone India. Needed to tweak the carrier.plist file to get the Edge option visible in the 'Settings' section. Other than that, love the new featues.
Tip : The 3.0 OS will seem very very slow. You need to Disable Push for Mobile Me.
On another Iphone forum someone also suggested to Install Mobile Substrate from Cydia (dunno how this will help)
Anyways the 3.0 is back to its snappy, fast self just like the 1.1.4 and 2.0.
Cheers.