How to Unlock your iPhone 3G

step1
Upgrade your iPhone to the 2.2 Firmware
Fire up iTunes and update your phone to the latest update, 2.2. by clicking the "Update" button.
Be sure to backup/sync your phone prior to doing so, and write down any note, programs, or settings you want to keep!
step2
Pwn your Phone
Download Quickpwn. This is the application you'll use to jailbreak your phone prior to unlocking.

Connect your iPhone to your PC all USB-style and fire up Quickpwn. The program is as self-explanatory as a jailbreaking application could be. Select your phone. Select your phone's firmware (which should appear naturally, as you did the update through iTunes. If not, download it here). Install Cydia or Installer (we prefer the former). Follow the directions.
step3
Install the application repositories

If you opted to install Cydia, fire up the application on your newly jailbroken iPhone and add the following application repository: http://apt9.yellowsn0w.com/

If you went for Installer, add this repository: http://i.yellowsn0w.com/

If you have no idea how to add a repository, fiddle around in each application's settings and options menus.
step5
Install yellowsn0w

Use either Cydia or Installer to install yellowsn0w. Once the server finally lets you do so (it's getting hammered right now), run the application. Then turn off your iPhone. Grab a paper-clip and follow these instructions to pop out your SIM card. Slap in the SIM card from the new carrier you want to use. Turn on your iPhone. If the carrier doesn't pop up after a bit of a wait, repeat the process to remove the SIM and try doing it again.
step 6
Crazy Troubleshooting

Switching to T-Mobile? Turn off 3G on your iPhone settings (under Networking) before switching SIM cards.

Turn off any PINs on your SIM card before making the switch.