I've successfully upgraded my 1st gen iPhone to a jailbroken and unlocked version of the 2.0 Software. I did it using the PwnagTool from the iphone-dev team (this URL is blocked in China, BigBoss has a mirror that is not blocked). This tool is not for a beginner, but if you are resourceful and don't mind trying things 7 times, its not terribly dificult.

The must have feature is of course the AppStore, which works very well, albiet slowly here in China. It does require an iTunes username/password, which may be a problem for some. I have not been able to install the Chinese input yet. I have enjoyed a few of the Apps from the AppStore, like the Facebook app, and Midomi. From the jailbroken apps side, OpenSSH and Mobile terminal work well as before.

So for anyone who can't wait to upgrade your phone, it is now possible and works well. However, for most Chinese users, I would recommend waiting until a more universal tool is released, and We iPhone Dev team updates their excellent software for 2.0.