The iPhone Dev-Team has released an update to RedSn0w fixing several issues with the older version.
Version b5b fixes an issue with using custom ramdisks on iPhone3G and iPod2G, and version b5c prevents redsn0w from crashing due to the ever-growing ramdisk size :).
TIP: If auto-detection fails and redsn0w tells you no identifying data was found, you can always pre-select the appropriate 5.0.1 IPSW using "Extras->Select IPSW".
You can download RedSn0w from here.
You can find instructions on how to jailbreak your device here.
Read More [via Sidney]