Just released, ready in your iTunes. This update includes the iTunes Wireless Store, but if you have an unlocked iPhone, be aware that this firmware may make your iPhone unusable. After several hours of testing in house and with the iPhone Dev team, here is the summary of what it does:

• The update will work ok in iPhones with no modification.
• The update will work ok in iPhones with Installer.app (although it gets wiped out; the apps seem to remain in the iPhone, but they won't appear in your screen).
• The update will work ok in unlocked iPhones, but it will return your iPhone to the activation screen. From there, no activation is possible. The iPhone doesn't get bricked but —as expected— so if you want to keep using it, don't update your iPhone.
• This has been confirmed with both anySIM and iPhone Sim Free.
• "Third-party applications won't work after the update" (confirmed by Dev Team.)
• "Firmware 1.1.1. relocks iPhone properly" (confirmed by Dev Team.)
• Unlocked iPhones updated to 1.1.1 will work with legit AT&T cards (confirmed by Natetrue) (read after the jump for an explanation of why this is wrong)
• iPhone Sim Free claims that their paid SIM unlocking solution doesn't hang your iPhone at the activation stage: they say you can activate using an valid contract, AT&T SIM and iTunes, but it will still be locked afterwards anyway. (We haven't tested this yet)

We are still updating and working with Dev Team to see what could be done. [Last update 11:05PM. Video of the firmware update process added. All updates, new feature list, security bugs and Apple Security note added.]

Update 11:05PM: A little late because of technical problems, but here's video of the firmware update process with my unlocked iPhone (done with iPhone Sim Free.) You can see the result at the end: activation limbo (unless you have a legal AT&T card and a contract. Unlike me and all international users who have unlocked their iPhones.)

Update 9:45PM: Readers report that iPhones updated with anySIM will not activate with the AT&T card that was previously used to activate the iPhone.

Update 5:29PM: Brian was about to go to the AT&T store to get a virgin SIM. The thought was, a virgin SIM in a previously AnySIM unlocked iPhone would be recognized and be capable of straight up activation, whereas my TMO and already activated AT&T SIM didn't. But Macworld's Jonathan Seff just tried this, and apparently, iTunes still sees the SIM, whatever it is, as alien. This is not good. The phone isn't bricked, but if it can't read a SIM, it can't dial. So it's partially bricked.

Update 5:21PM: Apparently, Natetrue's blog entry was wrong. Natetrue says that it doesn't work now, but his AT&T card was also used for activation in another iPhone. So neither Nate nor Brian tried with the original one.

Update 5:09PM: Brian was using an AT&T card that he used with his legit, locked iPhone, to try the activation. His iTunes says that the card is not valid for activation, probably because it has been already used once with another iPhone. We are investigating this, but we are now 100% sure that previously unlocked iPhones with upgraded firmware will activate correctly with their original AT&T cards, as confirmed by Natetrue. This, however, leaves out every international user without an AT&T contract.

Update 4:49PM: By the way, the firmware update runs correctly in phones unlocked with anySIM (Brian) and iPhone Sim Free (mine.) However, it has the same effect: after the upgrade, it returns the iPhone to "Waiting for activation" state with no possibility of getting through jailbreak so far.

So no matter what unlock you used, don't upgrade your iPhone.

Update 4:35PM: Natetrue from DevTeam says that his previously unlocked iPhone works after the 1.1.1 upgrade using a legit AT&T card. Something must be wrong with Brian's setup. We are investigating this now.

Update 4:27PM: In my iPhone, the IMEI seems perfectly fine, which according to Dev Team could mean that:

They restored the seczone or have, somehow, a backup plan and made radical changes to the firmware

In other words: they have successfully avoided the potential bricking, but activation seems to be impossible for now.

Update 4:13PM: Brian Lam tried to activate his iPhone with firmware 1.1.1 (this iPhone was unlocked before the update with anySIM.) This time, he tried iTunes activation and his legit AT&T card. The result: it doesn't work. From Brian:

I took a 4GB iphone, never previously activated on AT&T. I activated it using Independence, and then loaded anysim on it, and reactivated using independence and Tmobile. Then, I applied firmware 1.1.1 to it, and it deactivated my phone. Without trying to activate in independence or iTunes, it didn't work with my legit AT&T SIM, or the TMO sim. Using the AT&T SIM and and trying to activate it in iTunes did nothing: iTunes reported that the AT&T SIM was actually not a valid SIM.

The lesson: After firmware updating a iPhone that was previously unlocked to V1.1.1, no sims —even AT&Ts—seem to be legit for activation.

Update 4:07PM: I rebooted my iPhone. It doesn't ask me to connect to iTunes again for restore. It just shows the Activation screen.

Update 3:45PM: I've tried to activate the unlocked iPhone after the successful firmware upgrade. This is a must before testing if the unlock it is still there. To clarify:

• The 1.1.1 firmware upgrade works in an unlocked iPhone.
• It doesn't brick your iPhone. It just updates the firmware.
• It returns it to activation state.
• After applying, you have to reactivate it in order to see if the SIM card still works.
• Activation with Independence doesn't work. When it tries to do the jailbreak, it fails. It put the iPhone into "Restore" mode (see picture below.)

Update 3:26PM: OK, I have updated to 1.1.1 in my unlocked iPhone. It works. You have to put the AT&T card in before starting the firmware update. Video upcoming. Testing of unlock too (<-this means that we are testing the unlock. See above.)

Update 3:04PM: Benny restored his iPhone successfully. However, apparently the third-parties apps may still be inside the iPhone. The upgrade seems to take the apps out of the springboard, but not from the flash. Dev Team confirms this was expected, the iPhone update just clears the plist.

Update 2:58PM: Richard reports unable to upgrade iPhone due to non-AT&T SIM card installed.

Update 2:51PM: Benny tried AppTapp with the 1.0.2 firmware. Logically, it put the iPhone into restore mode. Now trying the restore. And no, don't try AppTapp with 1.0.2 firmware. Wait for the update.

Update 2:40PM: After restoring an iPhone with AppTapp (no unlock), Installer.app and all the 3rd-party applications got wiped out.

Update 2:35PM: Richard, from wireless info, says he can't apply his update.

Update 2:34PM: Readers are reporting unlocked iPhones result in SIM errors.

Update 2:30PM: Unmodified iPhone update works great.

Update 2:08PM: iPhone still updating, downloading firmware. Apple servers must have been hit with a download request tsunami.

Firmware upgrades/fixes:

• iTunes Wi-Fi Music Store
• Louder speakerphone and receiver volume
• Home Button double-click shortcut to phone favorites of music controls
• Space bar double-tap shortcut to intelligently insert period and space
• Mail attachments are viewable in portrait and landscape
• Stocks and cities in Stocks and Waether can be re-ordered
• Apple Bluetooth Headset battery status in the Status Bar
• Support for TV Out
• Preference to turn off EDGE/GPRS when roaming internationally
• New Passcode lock time intervals
• Adjustable alert volume

Security notice
WARNING: Apple has discovered that some of the unauthorized unlocking programs available on the Internet may cause irreparable damage to the iPhone's software. IF YOU HAVE MODIFIED YOUR IPHONE'S SOFTWARE, APPLYING THIS SOFTWARE UPDATE MAY RESULT IN YOUR IPHONE BECOMING PERMANENTLY INOPERABLE. Making unauthorized modifications to the software on your iPhone violates the iPhone software license agreement, and the inability to use your iPhone to unauthorized software modifications is not covered under your iPhone's warranty.

Security related updates - Fixed bugs
• Bluetooth
Impact: An attacker within Bluetooth range may be able to cause an unexpected application termination or arbitrary code execution

• Mail
Impact: Checking email over untrusted networks may lead to information disclosure via a man-in-the-middle attack

• Mail
Impact: Following a telephone ("tel:") link in Mail will dial a phone number without confirmation

• Safari
Impact: Visiting a malicious website may lead to the disclosure of URL contents

• Safari
Impact: Visiting a malicious website may lead to unintended dialing or dialing a different number than expected

• Safari
Impact: Visiting a malicious website may lead to cross-site scripting

• Safari
Impact: Disabling JavaScript does not take effect until Safari is restarted

• Safari
Impact: Visiting a malicious website may result in cross-site scripting

• Safari
Impact: Visiting a malicious website may result in cross-site scripting

• Safari
Impact: JavaScript on websites may access or manipulate the contents of documents served over HTTPS

[Apple]