Here is a Step by Step Tutorial ....
This tutorial will show you how to upgrade your iPhone 4 to iOS 4.2.1 without upgrading its baseband using TinyUmbrella for Windows.
This will also Jailbreak your iPhone 4 with GreenPois0n as well
Please Note: This ONLY Works with the iPhone 4!
My iPhone is currently on 4.0.1 and updating to 4.2.1
iClarified - iPhone - How to Update Your iPhone 4 Without Upgrading the Baseband (Windows) 4.2.1