Ah, this is normal. You just need to get the device out of recovery mode. I think tinyumbrella will be able to do it for you. Start tiny umbrella, plug in iphone and hopefully you have the option to kick device out of recovery. If TU doesn't do it the iReb will from ih8sn0w.com
The firmware is downgraded, you got the error because it couldn't downgrade the baseband.