Apple released now the iPhone 2.0 Software update for first generation iPhones, but the iTunes activation servers are down because of load. If you upgrade and the servers are down your iPhone will be unusable.

The iPhone 2.0 software update is available through iTunes 7.7 and has the 5A347 build number.
I still do not see any statement on the Apple site about the situation. If the activation servers are down they actually should stop offering the 2.0 update. Update: Bloomberg has published a statement from AT&T about the Activation server issues, but does not provide a solution. Gizmodo suggest to leave the upgraded iPhone or the iPhone 3G connected to iTunes and just wait. If you unplug the upgrade would restart.
More details on Macrumors.