Please read the reasoning here as I have tried to be as complete as possible and would like to hear from people for whom this doesn't work, to help identify real solutions. This necessarily makes things a bit... lengthy

I tried to upgrade a 1.1.2 iPhone that was activated/unlocked/jailbroken by an unknown method to 2.1 using iTunes 8 and OS X 7.5.5. Pwnage tool 2.1 seemed to be working well, but failed the first time after going into "DFU mode" and starting iTunes to do the custom restore. I tried for an hour and a half various methods and tips to get this working again before fixing it and I would just like to give a suggestion and explanation that might help some people.

I tried many different things that I found on the forums here and elsewhere that people claimed had fixed their 2001/1600 error and they didn't work. I also read that it didn't work well on OS X 7.5.5. FWIW, I think people are linking the cause and the solution incorrectly - things that are working for some and not others are likely coincidental. I tried removing the SIM, various types of restore sequence, checking iTunesHelper was shut... God knows how many things. None of these worked. Here is what happened to me, how I solved it, and what I think the problem is:

I first used normal restore 2.1 from iTunes, unpwned.
I ran Pwnage 2.1 and let it do its thing, choosing all the options (see guide at sleepers.net for Pwnage 2.0 if you don't know the process already)
Pwnage says it successfully entered DFU mode (screen is BLACK)
iTunes starts, says it recognises phone in recovery mode, SCREEN GOES WHITE, gives error 2001 and doesn't recognise the phone after that (i.e. disappears from left hand pane in iTunes)
I get the phone out of DFU and do random stuff for a couple of hours without success (note one of these things was to DFU restore the phone to uncustomized 2.1 but I *really* don't think that this is relevant - see below). Mostly I am getting 1600 errors whatever I try.
I decide to just start again from scratch. I don't even bother restoring to uncustomized 2.1 again as I figure the errors are preventing anything being modified on the phone.
I go through exactly the same process as the first time, get in "DFU mode" BLACK screen.
iTunes loads, phone in recovery, 2001 error as before with WHITE screen. All the same. At this point, I note that there is general confusion about exactly what constitutes DFU mode - some people say black and some people say white. I remember that when I had severe problems a while back with a different phone's wifi DFU mode was always colourful in some way.
SO, SIMPLY: quit itunes and start it again without touching the iPhone. i.e. screen STILL WHITE when iTunes starts, NOT only after starting recover like before.
iTunes recognises the phone in recovery, and I restore the custom ipsw successfully, followed by restoring the backup of the phone's settings etc. Everything works perfectly!

Here is what I think is happening: you have to have the white screen. there may be timing issues, and maybe iTunes can sometimes switch from black screen to white and carry on without error, alleviating this problem for some people. There tends to be a lack of information when things work properly, so we often don't know what people on the phone when Pwnage works - they just say "works for me!!!! thnx!!"

There does seem to be some disagreement on what exactly DFU mode is. I think people go off trying all kinds of things like I did, but just happen by luck to get the timing right when it succeeds, and attribute the success to some weird thing they did. I did restore at one point in what I thought was DFU mode (black screen) to official 2.1 but I strongly suspect this didn't help as the error after that was exactly the same. If you have severe problems maybe try this uncustomized "DFU" restore just in case.

IN SHORT:

You can use Pwnage 2.1 with iTunes 8 and OS X 7.5.5 to unlock, activate, jailbreak a 2G iPhone. You can do this even from old unlocked firmware of unknown origin. You can restore phone backups. Everything works.

If you are getting error 2001 when first going to restore from iTunes after Pwnage puts you in DFU mode: the phone should have nevertheless gone to a WHITE screen - just quit iTunes, don't touch the phone, restart iTunes and try again.

If you are getting error 1600 this may also help.

Even if you are having other difficulties not mentioned here, I would suggest that you aim for getting it in "white screen mode" before custom restore from iTunes as the first solution.

Of course I could be making the same mistake of identifying the wrong cause that I'm accusing you all of........ I will be interested to hear when this does or doesn't help people.

UPDATE:

My idea here is that timing of getting into DFU mode is the real issue. Whilst what I say here may well help you if you get error 2001, volkspost's advice below sounds like it would reduce the chance of even having this problem in the first place, by shrinking the opportunity for error. Please try that first.

Originally Posted by sambrightman

Please read the reasoning here as I have tried to be as complete as possible and would like to hear from people for whom this doesn't work, to help identify real solutions. ........

First of all thumbs up for taking the time to detail this. As you say, lots of people are so relieved they are out of the woods they don't let everyone know what they did!

It's my turn to go through the pwning of 2.1 tonight, so I will keep an eye out for all this... hopefully it just goes smoothly, but if not and if I get the chance, I will feedback on this.

OK, I have been reading tons of posts here on this topic. Let me share my experience and what I did to upgrade. I have crosschecked and tested this on two of my test iPhones. Some users end with errors when trying pwnageTool 2.1 with custom firmware on that.
Lets assume the iPhone is at firmware 1.1.1 - 1.1.4 and has never been pwnaged before.

1. Sync your iPhone with iTunes, make sure to also get the photos from camera roll.
2. If you care for call history, sms history aso SFTP into the "old" iPhone and goto /private/var/mobile/Library/ and save the *db files.
3. Get iTunes 8 on your Mac if you did not already
4. In iTunes restore to Apple firmware 2.1 (you will end with a locked iPhone)
5. Start Quickpwn 1.1 to pwn your iPhone, disconnect the iPhone then from the Mac
6. Use PwnageTool 2.1 to create the custom firmware. In pwnageTool once you are at the step where PwnageTool asks you if the iPhone has ever been pwnaged before, click "yes"; quit pwnageTool then.
7. Make sure iTunes ist running on the Mac
8. Shut down the iPhone (still disconnected from Mac) with the red slider
9. Hold Home button and while holding home button connect iPhone to Mac.
10. Keep holding Home until iTunes finds the iPhone in (simple) recovery mode.
11. Option click restore and select the custom firmware 2.1 you made.
12. iTunes offers to restore "from backup data". Dont, choose "setup as a new iPhone".
13. Sync your iPhone as usual, then install OpenSSH and SFTP into the iPhone to copy back the *.db files

Once an iPhone is pwnaged, you dont need DFU mode anymore. This is done in step 5.

Yes, I should clarify in case it's not clear that having not used QuickPwn (I had got the (presumably mistaken) idea that it wasn't appropriate) I told Pwnage that I had not Pwned before. It says that it doesn't hurt to do it again - however, as you say, there is more potential for getting-into-dfu-mode issues. Obviously I also told Pwnage that I didn't have a SIM that would activate normally, because I needed the unlock. I also did both these things the second time when it worked. Your method sounds like it could be much less error prone, which I believe is the key here.

Originally Posted by sambrightman

Yes, I should clarify in case it's not clear that having not used QuickPwn (I had got the (presumably mistaken) idea that it wasn't appropriate) I told Pwnage that I had not Pwned before. It says that it doesn't hurt to do it again - however, as you say, there is more potential for getting-into-dfu-mode issues. Obviously I also told Pwnage that I didn't have a SIM that would activate normally, because I needed the unlock. I also did both these things the second time when it worked. Your method sounds like it could be much less error prone, which I believe is the key here.

I did not want to correct your finding. Just checking all the pm's I get and the forum here made me feel that lots of ppl run into trouble when using PwnageTool on a never pwnaged iPhone. It should work (and works for me), but lots of users find it more easy to use the detour.
Even on a never pwnaged iPhone I dont use PwnageTool to get into DFU mode cause I never make it to follow the animation counter. Once the question "Was the iPhone ever pwnaged" shown up, I hit no, but as soon as the animation shows up then I quit PwnageTool. The firmware is done by then.
I get into DFU mode then manually, watch itunes starting and restore to the custom firmware. Ppl are different, thats the easiest way for me ;-)

I agree - the easiest way is the best way but definition of "easiest" is open to interpretation

To try to clarify what actually goes wrong, could you answer a couple of questions:

1) When you do this manually, do you get the white screen in DFU or the black one? Does it later go white and if so, when? (e.g. when iTunes begins restore).
2) When you have had problems using the animation in Pwnage, does Pwnage nevertheless say it succeeded getting to DFU but the process fails afterwards? This is what happened to me.

Originally Posted by sambrightman

I agree - the easiest way is the best way but definition of "easiest" is open to interpretation

To try to clarify what actually goes wrong, could you answer a couple of questions:

1) When you do this manually, do you get the white screen in DFU or the black one? Does it later go white and if so, when? (e.g. when iTunes begins restore).
2) When you have had problems using the animation in Pwnage, does Pwnage nevertheless say it succeeded getting to DFU but the process fails afterwards? This is what happened to me.

I have done DFU manually so many times, I cant even count it ;-)
Let me try to answer your questions step by step.

DFU mode manually:
You have iTunes 8 (or earlier versions) installed but not running, iPhone and PC/Mac are connected.
1. Shut down the iPhone (red slider or holding start/sleep and Home until screen goes black, release both buttons)
2. Hold start/sleep and home simultaniously for 10 seconds (just count 100, 200, 300, 400, ...- thats the way I try to be kind of accurate). Screen is black all the time. If you count to slow and the Apple logo shows up, restart at step 1.
3. After 10 seconds release start/sleep but keep holding home. There is no rule now how long you hold home now!!! Just keep holding until iTunes starts up and popps up a window telling you to have found an iPhone ind "recovery/restore mode". release home button. Screen is still black.
4. Click "ok" in this window. Then shift-restore (Windows) or option-restore (Mac) to the custom firmware.

The iPhone's scren has been black all the time. Then on the very beginning of the restore process, sometimes the screen turns white for a couple seconds, then switching to black screen with Apple logo and continuing to do the job.

On question 2: I dont know. The animation will let you hold home for exactly 10 seconds, then tell you that you made it. Using the manual method I always keep holding home until iTunes starts up and finds the iPhone ....

What i did for training to get into DFU mode manually without any problem is the following: Do the steps 1-3 above over and over until it works like a charm.
Getting out of DFU mode is easy: Just hold start/sleep and home for 30-60 seconds, until the iPhone reboots

Originally Posted by volkspost

3. After 10 seconds release start/sleep but keep holding home. There is no rule now how long you hold home now!!! Just keep holding until iTunes starts up and popps up a window telling you to have found an iPhone ind "recovery/restore mode". release home button. Screen is still black.

Ah, okay. Now I remember that this was how I was doing in manually on the previous phone with Wifi issues. I still remember various red and green colours being present at the time though :S

I guess there is a chance that Pwnage isn't actually detecting DFU mode, but rather just doing the 10 seconds, and sometimes this is not long enough? Either way, doesn't really solve much, as iTunes detected phone in restore mode with black screen both times, and failed, but then worked when it was left white. I'm pretty sure that one of the methods I tried whilst messing around was manually entering DFU as you describe. iTunes detected phone in restore mode, but failed. There is something else going on here I think.

Originally Posted by volkspost

The iPhone's scren has been black all the time. Then on the very beginning of the restore process, sometimes the screen turns white for a couple seconds, then switching to black screen with Apple logo and continuing to do the job.

Yes, it sounds like there is definitely some fuzziness around entering DFU mode and how iTunes copes with it.

Originally Posted by volkspost

On question 2: I dont know. The animation will let you hold home for exactly 10 seconds, then tell you that you made it. Using the manual method I always keep holding home until iTunes starts up and finds the iPhone ....

So you have had problems using non-manual method (Pwnage animation) even when you get told that you made it?

Originally Posted by sambrightman

So you have had problems using non-manual method (Pwnage animation) even when you get told that you made it?

I have only tried that one once and it worked.

one thing you have to keep in mind is that once an iphone is pwnaged (at 2.0, 2.01, 2.02 or even before at 1.1.4) simple restore mode will do when you restore to the custom 2.1 firmware. Dont try DFU then, that may throw errors.

If an iPhone is already pwnaged:
Disconnect iPhone and Mac/PC, make sure iTunes is running.
Shut down the iPhone (red slider or hold home & Start/Sleep until shutdown)
Press and keep holdiing Home button on the iPhone while connecting to PC/Mac
Keep holding Home until iTunes detects iPhone in recovery/restore mode (->this is simple restore mode, not DFU)
shift (Win) or option (Mac) restore to the custom firmware

I was having the same errors (1600 & 2001) in DFU on a non pwned phone

I spoke to volks in a PM and he confirmed DFU restore was working perfect for him on non pwned units, so knowing that it must be me I started trying to eliminate what else mite cause the problem.

To cut a really long story short + 10 restores It turned out my 2.1 custom firmware build was causing my 1600/2001 errors. I created a new custom IPSW without any extra trimmings like OpenSSH, Carrier Bundles and the partitions was set at 500mb instead of 800mb and suddenly DFU started working.

Anyways for what ever reasons it worked so all I'm saying is anyone that hasn’t tried creating a new IPSW it mite be worth a go