Details of the exploit are still being gathered; however, it looks like GeoHot was able to insert a custom command to iBoot meaning sigchecks have been bypassed (thanks mav). This should be a start for the iPhone 3GS (N88AP) jailbreak which has been dubbed purplera1n.
Geohot has already activated purplera1n.com but is hosting nothing but an image as of now. The really good news is that if the jailbreak is successful the UltraSn0w unlock should be compatible with the iPhone 3GS as well.
Have a look at the screenshot:
Jailbreakme 3.0 iPad 2 jailbreak [Coming Soon]