The iPhone hacking community is hard at work and the first step in regaining control of the iPhone has been achieved.

A downgrade process from firmware 1.1.1 to the previous firmware 1.0.2 is available. The downgrade allows you to again run 3rd party applications on the iPhone if you had upgraded the firmware. The iPhone will still remain locked though and you will not be able to phone.
Gizmodo published a video and the instructions for the iPhone firmware downgrade. See also the iPhone Wiki entry.

Update:
Apparently unlocked downgraded iPhones now work fully with the Turbo Sim Card hack. Details on Gizmodo.
As said in yesterday's story iPhone power users are in an uproar because the new firmware disabled 3rd party applications. With the firmware 1.1.1 Apple started the process we all know from the Sony PSP. Happy hacking!