Restoring a jailbroken iPhone
You need to put it in DFU mode before restoring...

This can be done by:


Open iTunes and connect the iPhone to your Mac or PC.
Press and hold the Home button and the Sleep/Wake button at the same time. After
exactly 10 seconds release the Sleep/Wake button. Continue holding
the home button until you iTunes pops up a message telling you that
it has detected an iPhone in recovery mode. 
The iPhone screen will remain black.


NOTE***: It may take a few attempts to get your iPhone into DFU mode. Generally, I hold down both buttons then release the Home button just before I think the Apple logo would appear. If you are still holding both buttons down and you see the Apple logo you are holding them down for too long!