Now is a good time to upgrade your iPhone to the latest 3.1.2 because they just released a software unlock for the latest baseband 5.11.07.

That means you have 2 options:
1. use Pwnage to upgrade with a custom .ipsw while maintaining the old 4.x baseband and unlock using ultrasn0w
- this is safer because you can still downgrade to any 3.x OS, and also if unlocking fails for some reason, you still have a backup option #2
2. let iTunes upgrade the firmware & baseband and then use blackra1n and blacksn0w to jailbreak and unlock
- this is more convenient because you don’t have to reinstall all your jailbreak-requiring apps