If you want to use Redsn0w to jailbreak a lower firmware version you can find the appropriate tutorial here.
IMPORTANT FOR UNLOCKERS
During this process you can update your baseband to the 06.15 version. If you are on 05.14 or 05.15 or higher you will need to do this to unlock. You do not need to do this for jailbreak only. Please read the following very carefully before deciding whether to do this. You can find out baseband version here.
1. There is no way to come back down from 06.15, and theres no hiding the baseband version from Apple. Youll be voiding your warranty in a very obvious way.
2. If some future baseband comes out with a critical fix, you wont be able to update to it if it remains down in the 05.xx sequence (then again, you wouldnt update to it if you wanted to keep your unlock anyway).
3. Starting with FW 4.2.1 if you have 06.15 on your iPhone you wont ever be able to restore to stock firmware (it will fail). Youll need to only restore to custom IPSWs (then again, if youre unlocker you should already be doing that).
4. There are reports that 06.15 may disable your GPS. The iPhone Dev-Team is currently working on a fix.
Dont update to 06.15 if you dont need to! Only do this if you need the unlock and youre stuck on 05.14 or 05.15, and youre willing to assume the above risks. If your baseband is already unlockable and you are on a lower firmware version then use PwnageTool to update to 4.2.1 without upgrading your baseband.
Create a folder on your desktop called Pwnage
Download RedSn0w from here and place it in the Pwnage folder. Likewise, download the latest 4.2.1 firmware from below and place it in the same folder.
4.2.1 (3G): iPhone1,2_4.2.1_8C148_Restore.ipsw
Extract the redsn0w app from the RedSn0w zip file by double clicking it.
***If you are already on iOS 4.2.1 you can skip this step. If you are on an unlockable baseband and on a lower firmware you should use PwnageTool instead to update without upgrading your baseband.
Connect your iPhone to the computer and launch iTunes.
Select your iPhone from the list of devices on the left. Now hold down Option and click the Restore button. Restore is preferred as it won't create any wasted space on your iPhone.
Navigate to the Pwnage folder on your desktop and select the 4.2.1 firmware ipsw. Click the Choose button to continue.
Once iTunes has finished updating your iPhone to the desired firmware open the Pwnage folder on your desktop and launch the redsn0w application from the redsn0w folder we extracted earlier.
Once RedSn0w opens click the Browse button
Select the 4.2.1 firmware ipsw we placed in the Pwnage folder on our desktop then click Open.
Once the firmware has been verified click the Next button to continue.
RedSn0w will now prepare the jailbreak data
From this window you can select the jailbreak options you would like.
Verbose boot displays detailed information on boot of your device and is generally only needed by developers and advanced users.
Make sure Cydia is selected. For this tutorial we will also select Custom boot logo and Custom recovery logo.
When you click to select each custom logo option a dialog window will appear asking you to select the image. Locate the image you would like to use then press the Open button.
*Remember the rules for boot logos are: RGB or Grayscale format with Alpha channel and dimension below 320x480. If you would like to use the iClarified ones they can be found here: Boot Logo, Recovery Logo
Notice that RedSn0w can Enable multitasking, Enable homescreen wallpaper, and Enable battery percentage. If you do not need multitasking we would recommend deselecting it as it makes your iPhone 3G run very slow.
If you read the warning above and you would like to update your baseband to the 06.15 iPad version for unlock then check Install iPad Baseband. Click Yes when prompted to confirm your decision.
Click the Next button to continue
Please plug your iPhone into the computer and make sure its OFF then click the Next button
RedSn0w will now guide you through the steps to get into DFU mode. You can find more help with DFU mode here
Hold down both the Home button and the Power button for 10 seconds.
Release the Power button and continue holding the Home button until RedSn0w detects the device.
RedSn0w will now download the iPad baseband and your iPhone will now reboot
RedSn0w will then begin uploading the new RAM Disk and Kernel.
Once this is complete you will be notified that RedSn0w is done. Click the Finish button. When your iPhone finishes rebooting (5 minutes or so) it will be jailbroken with Cydia on the SpringBoard.
You can now follow this tutorial to unlock if so desired.
*As usual a big thanks to the iPhone Dev-Team for their hard work and contribution to the iPhone community.