With the release of iOS 4.2.1, Apple has again gained the upper hand in the ongoing cat and mouse battle against iPhone unlockers. While the U.S. Library of Congress has decreed that users who choose to unlock their mobile devices for use on alternative networks cannot be prosecuted under the Digital Millennium Copyright Act (DMCA), there was unfortunately no prohibition on companies locking phones in the first place.
As a result, Apple has continued to tweak its locking mechanisms with every new release of iOS, including the one released earlier this week. Starting with iOS 4.2.1, the main part of the operating system checks the baseband firmware at startup, and if it doesn't match an expected signature, the phone will not boot. In the event of a failure, the iPhone will be stuck in recovery mode until it is restored to its original form. The baseband firmware is the portion of iOS that actually controls the cellular radio hardware, and this is what must be hacked in order to allow iPhones to be used on carriers other than AT&T (or whichever overseas provider sold the phone).
This change could potentially make things much more complicated for developers creating unlocking tools. However, if past history is anything to go by, it will be more a matter of when and not if they succeed. In the meantime, those that are using iPhones on T-Mobile USA or other non-original carriers will want to sit tight on iOS 4.1 or earlier.