There was a carrier file that you were suppose to update to, not the latest firmware.
Reconnect your phone to iTunes and check for updates again. the carrier file takes 2 seconds to install, then reboot your phone.

hawk,
i just updated to 3.1 on itunes and then rebooted iphone.....i have capability to send mms but when i try i get the little red exclamation point each time and it doesn't go thru...talked to at&t and they said all looks good on my account and said to call apple....apple said they cant' help to call at&t...any suggestions.