Once I upgraded to 3.0, even the Baseband is updated and hence I am having this problem. Even if you downgrade to 2.2, the baseband is still the one from 3.0 jailbreak and hence screwing up the wifi. If there is a way to go back to a previous version of Baseband (firmware), the problem will be solved.

I have seen many posts for downgrading the baseband on iPhone 3G but not for 2G model. I think I am stuck now but hopeful that the new 3.1 will fix this issue or the devteam will come up with a solution but I highly doubt as the volumes for 2G are low. They probably don't care about 2 generations old iPhone.

Thanks.