Why not just do this.
Go to jailbreakme.com if you are able to sync and download oktoprep. Then upgrade to 1.1.2 and try from there. I had problems activating on 1.1.1 before too but I decided to go back to 1.1.2 anyways and it worked fine.
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16GB White iPhone 3G
Jailbroken 2.0 Firmware
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