Iphone 3g upgrade / update from 2.2.1 to 3.1.2 freezes and never completes (failes)

Symptom:
The Iphone status bar during the upgrade freezes.

Resolution:
Restore your iPhone from a previous known working version. I was able to successfully roll back to 2.2.1 HOWEVER all the data was wiped from the iPhone. Luckily I had a back up to restore from and re-downloading the applications and songs i bought can be done without any issues or additional cost.

Below are the instructions for applying the 2.2.1 firmware. NOTE: I ended up upgrading the iPhone to 3.0.1 via this method, restore from a 2.2.1 backup and updating all my applications via the itunes application on the iPhone so they were compatiable with 3.0.1:

NOTE: This method WILL remove all data from your iPhone! Please be aware of this.

- Download the firmware from
http://modmyi.com/wiki/index.php/IPhone_Firmware_Download_Links#2.2.1_2
or
http://theiphoneproject.org/?page_id=3
or
http://www.felixbruns.de/iPod/firmware/

- Rename the extension from ".zip" to ".ipsw". If you are unable to view the extension of the file you need to go to your control panel, load "Folder Options", click on the view tab and select "Show Hidden files and folders" and ensure "Hide extensions for known file types" is UNCHECKED.

- Turn off your iPhone

- Open up iTunes and plug your iPhone in (iPhone is still off).

- Hold down the Navi button and turn on your iPhone. Keep the button held down till you see an iTunes icon with a USB cable

- iTunes will report that the phone is in recovery mode. Click OK.

- Hold down the shift key and click restore. A window will prompt. Select the renamed file (e.g. iPhone1,2_3.0.1_7A400_Restore.ipsw) and click OK.

- Wait AROUND 20-30 minutes for the firmware to be applied to the iPhone.

Done!

NOTE: Again, this method WILL remove all data from your iPhone! Please be aware of this.