Update August 26th 2008: Dev Team has released the updated version 2.0.3.1 of PwnageTool which solves all the below issues. The remarks made in this post with respect to PwnageTool caused problems no longer apply.
IMPORTANT: IN CASE UPDATING BREAKS YOUR EMAIL FUNCTIONALITY (INCORRECT PASSWORD ISSUE) FIND MY POTENTIAL SOLUTION HERE!
The world famous Dev Team has just released PwnageTool 2.0.3!
As always: To avoid version confusion: PwnageTool 2.0.3 supports Apple's official firmware version 2.0.2 (5c1) which as of this posting should be considered the current version of iPhone OS. Betas of version 2.1 have been made available to members of the iPhone Developer Program but must not be installed on non-development devices.
The procedure to jailbreak and unlock first generation iPhones has not changed from version 2.0.2 to 2.0.3 except that in Step 6 you have to select the new version of iPhone OS. This version of PwnageTool does not yet support unlocking 3G iPhones. Just jailbreaking on 3G iPhones works just fine.
I've updated my device within eight minutes without any issues. Everything's working like a charm. Usually PwnageTool checks for updates during startup. Here is a direct download and here is my non-official mirror.
Wherever you get PwnageTool please verify SHA1 sum. It should be 91e670e0c623cd43f5e8cfbfaae6c23d98d8f31b.
In Mac OS X open a Terminal and type:
/usr/bin/openssl sha1 <path to PwnageTool.tbz>
This will output the SHA1 sum to your terminal window.
I'm curious whether this version addresses some of the recent Cydia issues and keep you updated.