I searched all over when it came to restoring a pwned 2g iphone to it's factory state and I read different things.
Last night I think I made the mistake of choosing Erase and Reset Settings first before restoring through itunes. At first it was stuck in the booting pineapple logo and had the rotating wheel in the middle of it. After two hours and realized it was actually stuck I put it into DFU mode and restored through itunes.
Now I have the Emergency Calls Only screen on my iphone and when it's plugged in, the Activation screen is up on my itunes. I press continued, it recognized my at&t number but it said "Your Account Can Not be Setup with this iPhone."