The much awaited Sn0wbreeze 2.0 has been released by iH8Sn0w. Sn0wbreeze 2.0 for Windows can jailbreak iOS 4.1 on iPhone 3GS, 3G & iPod Touch 2G, 1G. The good thing about Sn0wbreeze 2 is that it uses custom firmware method to jailbreak iOS 4.1 and hence you can preserve baseband and unlock it with Ultrasn0w if it is supported baseband.
Just a couple of days back, the iPhone Dev team had released RedSn0w 0.9.6 beta 1 which could jailbreak iOS 4.1 (and even iOS 4.2 beta) but only on iPhone 3G & iPod Touch 2G. Moreover RedSn0w 0.9.6 is still in beta and hence under testing and also available for Mac only.
Download Sn0wbreeze 2.0 to Jailbreak iOS 4.1 on iPhone 3GS
Update: Download Sn0wBreeze 2.0.1 which fixes the iTunes error 37
The detailed guide to jailbreak iOS 4.1 using Sn0wbreeze is coming up soon.