How to upgrade from Version 3 and still be jailbroken?

[epeen]

I have an iPhone 3GS which I initially had jailbroken with blackra1n. Now I'm trying to figure out how to upgrade to the best version of Ios 4 and still remain jailbroken. If I could also unlock that would be great but that's not a priority at the moment. My iPhone is on version 3.0 (7A314) with firmware 04.26.08. I would appreciate any help you can give me!
Thanks!

[Goof]

The best way would be to make a custom firmware using PwnageTool 4.2 and restore in iTunes, your iPhone will be jailbroken once the restore is done and you can unlock via Ultrasn0w

[iPittsburgh]

You can use sn0wbreeze 2.2.1 if you are using windows.

[i.Annie]

Just note your jailbroken apps/tweaks/settings will have to be reinstalled. You can restore them back if you back them up but it's probably easier to just write them down and install again later after restoring to custom firmware.