2) Boot the device into DFU mode. Hold down power and home button at the same time (iPhone plugged into pc) and when the screen goes black take your finger off the power but continue holding down the home button. It will then load up iTunes and bring up a restore thing.
3) Shift, left click on restore and find the firmware you downloaded.
And that should be fine.
http://www.felixbruns.de/iPod/firmware/ firmware downloads can be found here
edit: on second thoughts that might actually not work and you would only be able to restore to 3.1.2 again. I would just wait for the 4.1 jailbreak to come out.. won't be long