Do not be alarmed when presented with a warning. Click OK to proceed.
Make sure to select Expert Mode from the top menu bar or your process will never be successful. This is very important!
Select your model which in this case, iPhone 3G.
PwnageTool will start looking for any firmware files on your computer. If it doesn't do it automatically, browse for the firmware file manually. Click Next to continue.
You will be presented with a menu with a bunch of options to configure your firmware. Be careful with making any change as it might corrupt your final output. Click Build to begin.
When the modified firmware is complete, you will be prompted with the following dialog box;
Select the correct option and proceed.
If your answer is No, follow the instructions to set your iPhone in DFU mode. This might be complicated so follow the instructions on screen carefully.