Prerequsites:

1. Download iphonefree from www.ewebcomputing.com/iphone/iphonefree.exe
2. Extract it to desktop


To unlock your iphone firmware 1.1.1 follow the steps below

1. Dial *#307#
2. Now erase all numbers and dial 0 again
3. Press Answer
4. Press Hold
5. Now Press Decline
6. Goto  contacts and create a contact Name "S" and then add url "prefs:"
7. Goto contacts and create a contact Name "J" and then add url "jailbreakme.com"
8. Now click on the url for "S" then connect to wifi
9. Now go back to home screen then dial 0
10. Now click on the url for "J"

At this point "Your Phone will go back to Activate IPhone Screen. and restart"

Update Installer to New Version
Install BSD Subsystem thru the installer.

Then follow steps to unlock 1.1.1