Do I need to downgrade, unbrick, or what? Please help.

I bought an unlocked, version 1.0 iphone in Bangkok. I used Thai Sim card, and Laos Sim cards on it no problem, got the internet, made phone calls, etc....

Then, one day, the screen started flashing frantically when I tried powering down. It came back to no problem so I kept using it.

In Laos I took it to an iPod download place (good clean place). The guy (seemed to know what he was doing) gave me 10 albums on my iphone but MAY have upgraded it to 1.1.1 version without knowing it or automatically.

After using it for a full day more without problem it started flashing wildly again and then stopped on a triangle sign with a "!" on it. Under it said "Please Connect to iTunes."

I tried doing that and the first time it asked me to restore. Not sure whether I should or not, I didn't. Still the warning sing.
The next day I tried it again, this time I don't even have the option to restore it and in fact iTunes doesn't recognize the device as an iPhone.

Do I need to unBrick, Downgrade to 1.0.2? Is my phone totally screwed?

Please help me!

Thanks for your time.