If you started Installer at firmware 1.0.2 or 1.1.1 it wants to upgrade to the latest version 3.1.1. If you do, you are screwed. 3.1.1 does not work on 1.0.2 or 1.1.1 but using the virginizer only works with theses firmware versions. Installer is needed to "virginize" the iPhone. In this process the corrupted seczone is repaired, after that the iPhone can be j/a/u at firmware 1.1.4. This solution is for Windows.
The way out: BSD Subsystem and OpenSSH
I had the original AT&T card in the iPhone all the time. DFU restore to firmware 1.1.1. Then use iLiberty to get "BSD Subsystem" and "Open SSH" on the iPhone. Usually you would add "Installer" aswell, but at 1.1.1 iLiberty fails to get Installer on the iPhone in some cases. In most of those cases the iPhone experienced problems before like scrolling BSD: root... text. Even downgrading to 1.0.2 and trying AppTapp Installer to get Installer on the iPhone fails then.
After adding the two payloads activate "jailbreak" and "Activate" in iLiberty and let the software do the job.
Download the Mac version of Nullrivers AppTapp installer to your PC from here, even if you are on Windows. Inside the package (folder on Windows) you will find "Installer.app" (at /Contents/Resources). Copy it to your desktop.
SFTP and SSH
To get Installer on the iPhone and working you need an SFTP client and a SSH client. On windows google for PuTTY and WinSCP and download/install both on your PC. On a Mac use Cyberduck or Fugu for SFTP and Terminal (on the Mac) for SSH.
On the iPhone setup Wi-Fi access. Then goto Settings->General and set Auto-Lock to never.
Connect to the iPhone via SFTP (your iPhones IP, root as username and alpine as password) and copy "Installer.app" from your desktop into /Applications on the iPhone. Even though its on the iPhone now, it wont show up on the Sprinboard!
Use PuTTY to start Installer.app
In WinSCP (still connected to the iPhone) choose menu "Commands" and select "Open in PuTTY". You will have to type in the password, it is alpine.
Leave SSH connection running. Now on the iPhone check "Settings->General" and make sure "Auto-Lock" is set to "Never". REALLY IMPORTANT. To not to run out of power, connect the iPhone to your PC, quit iTunes and photo app if they start.
In PuTTY set permissions for Installer (hit return after each line)
(Thx to XianLi, he uses a similar method to set permissions at fw 1.1.3/1.1.4)
chmod -R 755 /Applications/Installer.app
chown -R root:admin /Applications/Installer.app
chmod 4755 /Applications/Installer.app/Installer
In putty type
and hit return. Then type
and hit return. Installer will start on the iPhone. Let PuTTY run all the way, text will be scrolling on it.
It will bring you to a screen in Installer and offer to upgrade to "Version 3.0". Do it, you have to.
After updated the Installer can not be restarted as it wants to - you cant hit Home to get to the springboard. Instead shut down the iPhone (Hold Start/Sleep until red slider shows up, slide to shut down) and restart it (Hit Start/Sleep button).
You will loose the SSH connection. Re-establish first SFTP connection, then the PuTTY connection as done above as soon as the iPhone had restarted. Quit iTunes if it pops up again.
In putty type
and hit return. Then type
and hit return. Installer 3.0 will start on the iPhone. It will offer to update. This time DONT do it, cancel instead.
Hit "install" on the bottom. Even though you already installed BDS Subsystem (needed for SFTP and stuff) you have to do again. The Virginizer later will check if its installed via Installer. Goto section "System" in Installer and install "BSD Subsystem".
In Installer on the iPhone goto "Install" again, again into section "System" and install "Summerboard (Old)". You have to restart the iphone after doing and will find Installer among others on the springboard then!!!
I forgot we had some restrictions in 1.1.1 in terms of adding apps. Thats why things failed. Instead of manipulating files on the iPhone, we now use the old Summerboard and all is working.
Restart the iPhone. You may quit PuTTY and WinSCP on you PC now.
You will se "waiting fo activation" on the iPhone, just dismiss (if AT&T simcard in the iPhone).
Start Installer on the iPhone's Springboard and DONT update Installer. In Installer goto "Sources", hit "Edit", then "Add" and add i.unlock.no Hit ok then. Installer offers to update again, DONT, cancel instead. Hit "Done".
When done goto section "Unlocking Tools" (hit Install on the bottom of Installer) and hit "The Virginizer". Hit "Install". After download in the next window hit OK and do NOTHING, until its finished. Dont touch anything, may take 10 minutes.
When done, immediately start iTunes and restore to firmware 1.1.4.
Hope that helps