If you have a jailbroken iPhone and were wondering if you should update to OS 3.1 via iTunes, do yourself a favor and just wait a few more days. As with every other major iPhone software update, 3.1 adds a slew of cool new features and bug fixes, as well as breaks the current jailbreak exploit. Nothing shocking here, as this cat-and-mouse game has been going on between Apple and the Dev-Team hackers since 1.1.1.
The 3.1 update changes your iPhone baseband (modem) firmware, which cannot be downgraded. What this means is that if you “accidentally” install 3.1 via iTunes software update, your jailbreak (and therefore your unlock, if you’re using your iPhone on a non-AT&T network) will be broken indefinitely until the Dev-Team finds an exploit for the new baseband. However, if history is an indicator, it is extremely likely the resourceful hackers will find and release an exploit for the new firmware and they will do so in a matter of days. Though if for whatever reason Apple has accomplished the impossible feat of sealing every single possible security hole, jailbreaking iPhones with the new baseband would be all but impossible.
If you really can’t wait to try out 3.1, there are various rumors of people successfully updating their software by installing a custom 3.1 IPSW file using redsn0w, a popular jailbreak app. Doing so would leave the baseband at its current version (4.26.08), which could potentially cause some incompatibility problems with some of the newer features like MMS and tethering. You’d also have to go through the jailbreak process once again if and when the Dev-Team comes out with a fully compatible 3.1 tool.
So my advice is to wait it out; help is probably on the way. In a week’s time there will either be a solution or at least a word on whether or not cracking 3.1 can or can't be done. Best of luck, Dev-Team; there’s a lot of folks rooting for you.