I just bought a 2G Iphone 8gb that is unlocked with autoiphoneunlocker. The phone is currently running FW 2.0.1 and I want to upgrade to 2.2 and unlock/jailbreak it with Quickpwn. I tried to do a complete restore with Itunes and it gave me an error message and the phone went into Recovery mode. I got it out of recovery mode, but I cannot update to 2.2 Firmware and I cannot restore it with Itunes.

Does anyone know how I can get this phone back to the factory settings so that I can use Quickpwn to do the unlock/jailbreak

Please tell me how you got out of recovery mode

Did you guys try to put the iPhone into DFU mode (works even if in recovery)?? You both are using 2G iPhones.

Make sure to have iTunes 8.1.1 installed. Connect iPhone and PC, shut down iTunes if running or starting up. Hold Home and Start/Sleep until the iPhone's screen goes black - let go of both buttons.

Hold Home and Start/Sleep for 10 seconds (I always count 100, 200, 300...) then release Start/Sleep but keep holding Home. Keep holding it until iTunes starts up and finds an iPhone in recovery mode. It usually takes a while, like 15-20 seconds. If the iPhone's screen is still black, you are in DFU.
Release Home and restore to Apple stock fw 2.2.1. After that use Quickpwn/PwnageTool to jailbreak, activate, unlock the iPhone.