Just so this is officially answered since it's at the top of GOOGLE when searched. (I know this is a year old post)

Simply remove the black bottom piece of your first gen Iphone 2g (carefully) and remove the black felt cover over your Mic piece. While you're at it clean out the holes in the black cover and the volume will increase drastically due to dirt clogging the holes over time. Here is a link to the solution. I've personally done this a couple of times to my phone and friends phone and it solves the problem every time!

http://mathewwithonet.com/2008/12/15...-echo-problem/

Have you recently installed any app not recognised by apple. These types of apps sometimes cause problems. If not try restoring. That may work.