Apple has just released the iOS 4.2.1, I downloaded and installed it on my iPhone 3Gs.
It seems to work fine.
There are also good news for those who want to JB the iPhone
From the Dev-Team Blog:
With Turkey Day a few days off, today Apple publicly released FW version 4.2.1. As always, ultrasn0w unlockers please stay far far away from this official firmware (and all official firmware). Wait for the ability to create custom 4.2.1. IPSWs that don’t update your baseband! If you’re not an unlocker, read on!
The best news of all is for owners of iPhone3G, older iPhone3GS, and non-MC iPod touch 2G. Due to a combination of our original pwnage2 exploit, the arm7_go exploit, 24kpwn, and limera1n, your device is “just as jailbreakable as ever.” You reap the full benefit of an untethered 4.2.1 jailbreak.
Read the full article http://blog.iphone-dev.org/