When i press the home and power buttons down, and let the screen go black, i let go of the top power button, keep holding the home button, but itunes never recognizes the iphone at all, in fact, when the screen goes black it disconnects itself from itunes. What am I doing wrong?

and side question - does downgrading the firmware delete contacts you have, any email accounts you have set up, etc. etc.?

if I am not mistaken, you have to keep them both pressed until you see the apple logo (boot starts again) and then stop pressing the power button. Try that and I think you'll be fine.
Cheers!

ok, thanks. That helped, now, i got pretty much to where I installed the installer app, using jailbreakme.com - but now when i start up iphone it says "waiting for activation " "this could take a while" But i can still do everything but call people. Before, earlier today, i had activated my new iphone and i was able to call people but not receive calls (i imagine porting my # from verizon will take awhile) - i am just wondering why I cant make outgoing calls anymore now.... is it because i am on 1.1.1 - which i am not even sure I am on, but it seems that i am, because, well, i installed an app from installer.app

please help, i am a bit lost/worried.

Go to settings->general->about and you'll find your version. You propably haven't completed the entire jailbreak process. Check on the sticky topics, you'll find information in order to complete it.