To Upgrade using iTunes: Your iPod should show up in iTunes when plugged into your PC/Mac. Click on your iPod’s name. Press and hold SHIFT then click update, now find the OS 3 file. For the iPhone it should be “iPhone1_2_3.0_7A341_Restore.ipsw”. For the iPod Touch 2G “iPod2_1_3.0_7A341_Restore.ipsw”. Choose Open and now iTunes and your iPod/iPhone should be doing the work for you.
iPhone OS is the operating system running on the iPhone (both original and 3G models) and the iPod Touch. It is based on a variant of the same basic Mach kernel that is found in Mac OS X. iPhone OS includes the software component “Core Animation” from Mac OS X v10.5 which, together with the PowerVR MBX 3D hardware, is responsible for the interface’s smooth animations. The operating system takes up less than half a GB of the device’s total 8 GB or 16 GB storage. It is capable of supporting bundled and future applications from Apple, as well as from third-party developers. Software applications cannot be copied from Mac OS X but must be written and compiled specifically for the iPhone.