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weird.. either virtual pc's usb support sucks, or something else happens there.. your best bet is to try on another machine.
iRecovery doesn't have to run on the same box as iTunnel: after you get an apple with the progress bar, you can connect to a different PC and try itunnel there.
I am back from holidays. I repeated all process and I can paste you now the output of the itunnel
#984353 - Pastie
Just 2 things I noticed.
When I issue the ramdisk 0x90000000 command it does not give more information like "the ramdisk has been created" just a new line.
To get that the itunnel detects the iphone I need to disconnect the usb and reconnect again. Otherwise it keeps waiting for the iphone.
I am running XP on a virtual machine (virtual pc)