for OS4 just connect to iTunes and upgrade your firmware. you probably want to restore it first tho
no, a restore is not needed.
First, you'll need the newest iTunes, so update your iTunes.
Secondly, backup, backup, backup. I can't stress that enough! and NO a regular sync isn't considered a backup. Right-click on the iPhone name on iTunes and do a backup!!
Before we move on the next step, MasterClip, what iPhone do you have? What modem firmware do you have(this can be found a few lines below the Version you're on).
PS. Nick, you're on 3G, use this guide to jailbreak your 4.0.1:
http://www.youtube.com/watch?feature=iv&v=qjjxOchrIm8&annotation_id=annotation_889555 it should help anyone else really.
I'm not gonna update to 4.0.1 just yet since it's really no biggie for me.