I suggest upgrade iTunes to version 8. Upgrade your firmware to 2.1 since i don't there there is anything you can't do on 2.1 that you can on 1.1.4 at this point. Then download and run quickpwn to jailbreak/unlock.
If the phone has firmware 2.0 or above on it right now, then you need the iTunes 8 mobile device drivers to recognize the phone. Either way it's best to upgrade EVERYTHING. There is no reason to be at that firmware.
Oh... if the end of the USB cable on the phone is the end that plugs into the computer then you're at 2.0+. If it's the end that sticks into the iPhone then you're at 1.1.4 or below.
You will lose all your apps and have to re-install them all from Cydia. 1.1.4 & 2.0+ have completely different file frameworks but almost all apps for 1.1.4 have been re-written for 2.0 so you'll be fine.