I had a restored but previously jail-broken iPhone 1.1.4 and the upgrade using the MacRumors iPhone 2 upgrade download worked!!!
I could not wait until the iPhone 2.0 updater appeared in iTunes. That would be who knows when. So, I downloaded from MacRumors. I tried several times with Safari with no luck. But then tried Firefox 3 and that worked without a hitch.
HOWEVER, before you download, make sure you have enough free hard drive space on your computer to completely backup your iPhone. That's what the upgrade process will do first. So clear some room if you need to.
Once you have the file downloaded, you can connect your iPhone and option-click the Check for Update button. Then you just need to navigate to your new downloaded file ending with an extension of ipsw and select it and you will be on your way.
Prepare for a long wait. The first long wait that is a little disturbing gives you this interminable dialog: preparing iPhone for update.
But, finally the dialog will change to "Updating iPhone Software" and then now it is showing "Verifying updated iPhone software". The verify seems to be taking a while.
Remember the big wait will be for transferring everything over to the iPhone that you had on it before. That hasn't started yet. My connected iPhone is just displaying the white Apple at the moment.
OK. Now I'm seeing "Updating iPhone firmware" with the candystripe progress bar that doesn't tell you how much progress you've made.
Oops, I may have blown it. I chose to restore from backup. Hoping that gives me my information but keeps my nice shiny new 2.0 upgrade in place. Hope, hope.
Looks to be good, my info says version 2.0!
In all the excitement I seem to have accidentally turned off the sync while it was in progress. That may give me some grief. I'm waiting right now for it to resync and hope I am not left with almost nothing which is what is showing right now on my iPhone contents bar.
Sync is taking a really long time or so it seems. That may be the good news as the minimal contents showing above would not have taken as long to sync. It's probably that I did erase my iPhone and now it is taking a while to get almost 8 gb back on there. Be careful when you do your upgrade and don't get nervous and interrupt the sync. This going to take a long while I'm afraid. Showing about 60 files of 468 to sync.