As with any new iOS firmware update, the race is on in the hacking community to crack open Apple's mobile OS to allow for unofficial applications and the ever-loved carrier unlock.
iOS 4.2.1 released last week for the iPod touch and iPhone, and the famed Dev-Team has cracked them (almost) wide open.
Just prior to Thanksgiving, the hacking team released an updated version of redsn0w that will jailbreak the iPod and iPhone, but there are some complications. Other than for owners of iPhone3G, older iPhone3GS, and non-MC iPod touch 2G, the jailbreak is "tethered," meaning that jailbroken functionality won't work unless it's connected to a Mac or PC. Older devices fall to an exploit that lets them retain the jailbreak even after a power cycle.
As for the unlock situation, it turns out that the baseband software used in the iPad 3.2.2 firmware is fully compatible with the Infineon chip used in the iPhone 3G/3GS and is vulnerable to an exploit that's since been patched in the iPhone firmware. Essentially, the hackers figured out how to shoehorn the iPad modem software into the iPhone 3G/3GS and than unlock it for worldwide carrier use. Pretty clever.
There's still no unlock solution for the newer iPhone 4 basebands, but we're sure that's in the works.