You can work around the problem by using blackra1n first and then shift-restoring, pointing to your custom firmware in iTunes, without putting your phone in any special mode.
Every single time I restore with a custom firmware I have to:
1. go to /user/library/itunes/device support and delete this file.
2. Build a NEW custom firmware.
3. Put into DFU when instructed and then option+click restore to the new firmware.
Thanks for the info guys....
I took the ireb method and all is now good.
A few more questions though...
Does this error affect all iphones..or just 3g ones ( I'm assuming it only affects iphones that have not been jailbroken in the past)...?
In case I ever get issued a replacement for my iphone which is a 3GS, I notice that ireb does not have a option for 3GS....?
Does it work for 3GS...?