Finally! I managed to steal my sister's iPhone 2G and experiment on with unlocking it using the PwnageTool on Firmware 3.1.

The unlock method of iPhone 2G is as much same as that of iPhone 3G but more safe, in case you make a flaw you can easily recover and unlock your iPhone again which is not so easy in case of iPhone 3G and specially the new iPhone 3GS. Follow the steps with open eyes, and trust me you won't even need to ask for help in the comments.

Please backup with iTunes before trying this. This process only works on Mac for now, no Bootloader files were needed during the unlock process.

1. Grab and download the Pwnage Tool 3.1 for Mac OS X.
2. Make sure to update to the latest iTunes 9 before attempting this unlock.
3. Download the 3.1 Firmware for iPhone 3G and save it on your desktop.
4. Run the Pwnage Tool 3.1 and select iPhone and click next.
5. Select the Firmware 3.1 with build iPhone1,1_3.1_7C144 and click next.
6. Select 'Yes', click next and then select 'No', now the 'Building IPSW' has started.
7. Once completed, select 'Yes' to the prompt and click next.
8. Open iTunes and click Restore (while holding Option key) and select the newly created Custom 3.1 IPSW on desktop.

Voila! its unlocked and will work with any carrier. As you would notice that the process is very similar to the unlock of iPhone 3G on Firmware 3.1 but with only one difference, you don't have to use Ultrasnow anywhere.

Here is a direct link to download the iPhone 3.1 Firmware for iPhone 2G, alternatively it can be downloaded from ThePirateBay as well.

Note: This method will only and only work for the iPhone 2G and uses the Simple mode in PwnageTool as a reference. No bootloader files are required during the process, at least for us.

Update: An Exclusive Tutorial for users with iPhone 3GS is now available.