How To Convert .dmg file to a .ipsw file.
You can download the second beta release of iPhone 3.0 OS for iPod Touch 1G, iPod Touch 2G, iPhone 2G, iPhone 3G from Sizlopedia ( related post: where can I download iPhone 3.0 beta 2 OS ).
If you extract these files you’ll find get a couple .dmg files which needs to be combined into a .ipsw file before you can upgrade the OS.
The solution for this is:
1> Download – PowerISO.
2> Import all the .dmg files and export it to a preferred location as .ipsw file.
3> Go to iTunes and do the regular upgrade process.
This tip is by Dan Kotak.