I have a uk iphone 3g 16gb and want to jailbreak and unlock when ultrasn0w is released.

At the moment I am using a pay-as-you go sim for o2, so can use the phone until the unlock comes out and I can put my vodafone sim in.

I was going to jailbreak with redsn0w today, then install ultrasn0w when it's out but see that I am given the option of cydia or icy when running redsnow.

I thought both of these did the same thing - is there a difference from one to the other, should I pick just 1, or both?

pick cydia, a few people have had problems with icy

Cydia`s been around for quite some time now, and saurik is doing a good job maitaining it. Better stick with this until icy get`s more development.

use Cydia.
If you are using redsnow 0.7.2 to jailbreak your iphone. Do not pick both cydia and icy together. If you do, Cydia will crash when run. Pick Cydia only.
ICY still installing some old packages.

0.7.1 did not have ICY option.

You could always install Icy later through Cydia once Icy becomes more stable and plays nicely with Cydia.