How can I fix an iPhone 2G that is stuck on the connect to iTunes screen?
Jailbreaking is the easiest way to kill the activation process, fortunately for you the 2G is cracked on such a low level is a one shot process there's a guide up on iClarified how to do it. 

After that you should go have a look at which is a jailbroken firmware with a lot of the features that the iPhone 2G ended up missing out on.