I've given up on the 2.1 firmware for now. Seems laggy compared to 1.1.4. Also some of the Apps I had for free on 1.1.4 were either not available on 2.1 or you had to buy them from the App Store.
So I managed to revert back to 1.1.4 from 2.1 after a bit of trial and error. Heres how I fumbled my way through it.
I tried using iTunes 7.5 as suggested by some google search results, but they were for reverting back from 2.0. I had no luck with 7.5. I ended up with one of the 6000 errors. So I reverted back to 2.1 and started again.
I read a post on Canadian forum that suggested using iTunes 7.6, which is what worked for me on my first gen (2G) iPhone.
What you need:
1.1.4 firmware
iTunes 7.6
iTunes 7.7
ziphone (I used version 2.6)
This is what worked for me.
1) Uninstall iTunes.
Firstly go to Music and rename iTunes to iTunesBackup. I also copied the files I delete in this step as a backup too, in case I needed them again.
Deletion time. Run these commands in a terminal to remove iTunes from your mac
(from http://sleepers.net/guides/20-to-114-downgrade/)
killall iTunesHelper
sudo -s
rm -r /Applications/iTunes.app
rm -r /Library/Receipts/iTunesX.pkg
rm ~/Library/Preferences/com.apple.iTunes*
rm -r /Applications/iTunes.app
rm -r /Library/Receipts/iTunesX.pkg
rm ~/Library/Preferences/com.apple.iTunes*
rm -r /System/Library/PrivateFrameworks/MobileDevice.framework
Some of those commands gave me file doesn't exist errors. I just ignored them.
2) Install iTunes 7.6
3) Put your iphone in DFU mode (NOT recovery mode) and connect it to your Mac. Hold the option key down and click restore. Find the 1.1.4 firmwware on your
mac. Let iTunes update the iPhone with 1.1.4.
4) When it finished it may show an error. Mine showed 1015. This is not a bad thing. Disconnect your iPhone. Quit iTunes and update it to 7.7.
Note: Actually you may not need 7.7. The only reason I installed it was at this stage I tried to use pwnage tool to unlock the phone, and it wanted 7.7. Pwnage didnt work anyway as it was the version for 2.1, not 1.1.4. so I then tried the origianl version of ziphone I used to unlock the iPhone when I first got it.
5) Put your phone back into dfu mode and reconnect it to the mac. iTunes will start up, just ignore it. Start ziphone and unlock the phone. 4 minutes later you have a working 1.1.4 2G iPhone again.
So thats what worked for me. Hope it helps if you if you are trying to go back to 1.1.4. If you cant get it working you can always restore back to 2.1 without a problem.