IOS Upgrade

Hi,
I'm currently on a jailbroken/factory unlocked iPhone 4 running iOS 4.1 (8B117) with firmware 02.10.04.

I have been trying to upgrade my phone to iOS 5.1.1 but having issues with it.

I am a Mac user with OSX 10.6.4 and iTunes 10.6.3. I have downloaded iOS 5.1.1 onto my HD but haven't been able to upgrade the firmware with iTunes.
(Downloaded iPhone3,1_5.1.1_9B206_Restore.ipsw)

It keeps throwing me 3014 error earlier and now says, The iPhone ABC could not be restored. This device isn'y eligible for the requested build. I have tried editing the host files inside /private/etc but without any luck.

A few things that I have down so far which could be the reasons for the issue:
1. Jailbroken and have Cydia
2. Pressd Opt + restore and Opt + Update
3. Paused several times while downloading iOS in Safari
4. Updated iTunes from 10 to 10.6.3
5. Wrongly edited Hosts file.

I have been working for weeks on this one here ut have not been, in any way, able to work around it. Hence, I have resorted to this forum.

Any word of advice is much appreciated.

Thanks.