Seeing as blackra1n is only a tethered jailbreak, installing your own [custom] firmware is the way to go. But, (at least what happened to me) is that I constantly got 1604 errors while installing firmware of which I made using PwnageTool. As a short howto, here's what I did:

1. Get blackra1n and run it. It'll put your iPhone in recovery mode. iTunes should be closed.
2. Download or create custom firmware. If you are using PwnageTool, make sure to check off Activate so it is not activated. Just before it's done creating the firmware, click Yes to if your iPhone has been pwned before.
3. Start up iTunes, and restore using the firmware you just made. For Windows users hold shift and click on Restore. For Mac users hold option. Make sure your iPhone is in recovery mode not DFU mode. That's the part that I forgot.
4. iTunes should do it's thing and you'll be good to go.
5. After I put the firmware on, I had no service whatsoever so I ran blackra1n again and I had service. If you have the 5.11.07 baseband, be sure to install sn0w in blackra1n. You might need to fiddle around with things.

And that's about it. You now have a jailbroken iPhone 3G that's untethered. Also, here's how to install .ipa's:

1. Add the cydia.hackulo.us repo in Cydia.
2. Install AppSync and Installous. AppSync patches the MobileInstallation file while Installous lets you install .ipa's on the fly.
3. Either sync drag and drop the .ipa's to iTunes and sync OR download the Safari download plug-in (which allows you to download files), find .ipa's and install them. I put all the .ipa's I needed on a local server so I head over to the server address and install them right away. You can do that by using something like XAMPP.