Vijay,
I think you have done the right think.
Please use the redsnow again
" To use redsn0w simply upgrade the device in iTunes to firmware version
3.0 and run redsn0w to activate and jailbreak the device (and if you
are using an original iPhone 2G, it will unlock it too!)"
I didn't faced any such problems.
Upgrade to OS 3 using the update options from itunes.Followe the onscreen instructions at the Redsnow software
Steps to follow:
1. Create a folder on desktop and name it as ‘RedsnOw’. Move all downloaded files to this folder.
2. Connect iPhone to computer with the help of USB.
3. Launch RedsnOw software and browse appropriate .ipsw firmware file from the folder. Click on Next to continue.
4. If you want to unlock the iPhone then select ‘Unlock’ option from the window. Also select ‘Install Cydia’. Again click on Next to continue.
5. A bootloader window will appear, perform the instructions given on the screen.
6. Once you finish with above process switch off the device and click Next to start with DFU mode.
7. Put your phone in DFU mode by using screen instructions.
8. The redsnOw tool will automatically start the unlocking procedure. Just wait for few minutes to get an unlocked device.
All the best.
Prashanth