Method and tutorial by lex.
This is so much better then any previous method/YouTube tutorial, seriously don't use other methods they make you do things that are unnecessary and take longer then this!
When Apple released the iPhone and even the iPod Touch, a different design philosophy was in place then that is now. No internet verification with Apple servers to give the OK to restore or update, and downgrades were not prevented. From iTunes version 7.3 (released June 29th 2007) through iTunes version 7.5 (released November 6th 2007) this amazing philosophy remained unchanged.
You decided when to restore, update, or downgrade with nothing happening on Apple's end or any internet connection requirement whatsoever. Unfortunately, with the release of iTunes version 7.6 Apple changed their reasoning. iTunes version 7.6 would check for the iPod/iPhone Update Server every launch of iTunes, and before/during all restore/downgrade/updates. This meant you the user loss control, and now had to rely on Apple for the OK to do what you want with the device you own.
All is most certainly not lost however. iTunes version 7.5, the last version of iTunes with the old philosophy, supports restoring and updating firmware 1.0-2.0 beta 3 (all img2 style IPSW files).
To restore/update an iPhone or iPod Touch to firmware 1.0-2.0 beta 3 offline, you need iTunes version 7.5. If you do not have iTunes version 7.5 on your Mac or Windows PC, download iTunes Eraser and follow the tutorial on the page to completely remove the iTunes version currently installed. Once no iTunes version is installed, you can simply download the iTunes version 7.5 installer from the iTunes page and run it.
Connect your iPhone or iPod Touch to the Mac or Windows PC with a USB Dock cable, and enter it into DFU Mode manually to prepare for the restore. To do so:
You'll know if your in DFU Mode if the screen of the iPhone or iPod Touch is black, but not off.
The iPhone or iPod Touch will now appear in iTunes. Click ok when prompted by iTunes that your iPhone or iPod Touch is in DFU mode. Then place the mouse cursor on the restore button. Press down the the option key and click. A new window will open, select your desired firmware 1.0-2.0 beta 3 IPSW file, and wait for the restore to complete. IPSW files can be found on the IPSW section of this site. iPhone firmware 2.0 beta 2 is availble here and iPod Touch firmware 2.0 beta 3 is available here.
If your restore gets stuck on "Waiting for iPod" or "Waiting for iPhone" for a few minutes and never continues, this means your iPhone or iPod Touch model is incompatible with the firmware you are trying to restore to, because of NAND flash differences used in newer models..
What happens after the restore is different for the iPhone and iPod Touch and the firmware versions:
A firmware 1.0-2.0 beta 3 iPhone will boot to either Recovery Mode or the activation screen. If booted into Recovery Mode and you got an iTunes error 1015, 1013, or 1012 (this happens when the baseband version is higher then what the firmware version you restored came with originally) you need to exit Recovery Mode so that you can boot to the activation screen. ZiPhone can boot out of Recovery Mode using ziphone -N. If your iPhone does not boot out of Recovery Mode after a few minutes, then go back to step 3 and do another restore to the same firmware. You can do this right from Recovery Mode since Recovery Mode allows you to restore the same firmware version or a higher one. After this second restore, use zipone -N again. This time the iPhone will boot out of Recovery Mode and to the activation screen. The reason you may have to restore twice seems to be because after one restore sometimes the FTL just refuses to load no matter what until you restore again.
A firmware 1.1-1.1.5 iPod Touch will boot to the Connect to iTunes screen and then go to the lock screen after a few seconds, ready to use. Do note that the iPod Touch will not be activated, Apple just use to not require it to use the iPod Touch. Since it's not activated, iTunes may say "Upgrade to iTunes 10 or greater" and not allow you to sync the iPod Touch. I found an easy way to bypass this and gain the ability to sync the iPod Touch without activating it. Simply turn off all internet to the computer running iTunes version 7.5, quit/close iTunes, and then open it again. What do you know, you can set it up and sync to your desire. Yes, Apple as of July 2019 still has a server connecting to iTunes version 7.5 from 2007.
A firmware 1.2 beta-2.0 beta 3 iPod Touch will boot to a pink activation screen because Apple started requiring activation to use the beta firmwares and the beta expired over a decade ago.
So now you have a completely stock iPhone or iPod Touch on 1.0-2.0 beta 3 firmware. If your on an activation screen or want to be able to sync your iPod Touch without getting a "Upgrade to iTunes 10 or greater" message in iTunes version 7.5 on firmware 1.0-1.1.5, 2.0 beta 2, and 2.0 beta 3, then you should activate it with ZiPhone. You don't even need to jailbreak if you don't want to. To only activate use ziphone -a. If you want to jailbreak and activate, use ziphone -j -a.