iPhone update v 1.1.1 progress is being made.
From Computerworld:
Just two days after reporting preliminary success in opening iPhones updated to firmware 1.1.1, the iPhone Dev Team has published a process for getting around Apple's updates to jail break an iPhone and install non-Apple applications. The process involves downgrading the iPhone to version 1.0.2, patching it, upgrading, and patching again. If you think that sounds convoluted, you're right. The hacking process is somewhat convoluted and is definitely not for the faint of heart.
So it's now possible to update your iPhone to the new version now and keep your 3rd party applications! It's pretty hard to do at this point though and I think I'll wait for an easier method before I make the upgrade but it's good to see that progress is being made.