Hackers have been trying to unlock the iPhone to work with other carriers ever since the device launched late June. While that goal hasn't been accomplished yet, a major milestone has been achieved today.
Apparently, the hackers at the iPhone Dev Wiki have managed to partially unlock the iPhone by using a new piece of software called iASign. The Mac-only application will generate an unlock code based on the Device ID, IMEI (the universal serial number) and ICCID (Integrated Circuit Card ID) numbers. As a result, iPhone owners can pop in any Cingular or AT&T SIM (including Pre-paid) and make calls without picking up a 2 year contract with AT&T.
The process is fairly complicated, according to reports. You will need some command line knowledge and also know how to replace files on the iPhone. The team is currently working on a Windows version of the software, as well as a GUI.