Gotti, here are the steps you'll need to take in order to get CyanogenMod 5.0.7 (aka the all-new Android 2.1 ROM) on your G1.
I advise you to set aside at least an hour to get all of this done. And make sure you're not far from a power supply at any time.
1. Download the application "My Backup" from the Market. It's a fully functioning 30-day trial. Or you can buy the full version entitled "My Backup Pro".
2. Use that application to back up all your apps and data to the sdcard.
3. Download
this file.
4. Once downloaded unzip that file and put the file DREAIMG.NBH on your sdcard.
5. Turn off your G1. Power it on whilst holding camera button to get to the bootloader screen. Hit the End key to begin the update. When it is done, hit the trackball to restart. You have now travelled back in time and should be running the Android 1.1 firmware.
6. Download
this file. Rename it to "update.zip" and put it on your sdcard.
7. Turn off your phone. Power it on, this time whilst holding the 'Home' button. You should get to a screen with an exclamation mark. Press Alt+L to see the text, and then Alt+S to apply the update. This will update you to Android 1.5, which is where you need to be in order to gain root access.
8. Go through the standard Android setup routine so you can get to the home screen.
9. Download these two files and put them both on your sdcard:
FlashRec.apk
Amon-RA Recovery Image
10. Go to Settings > Applications and make sure the "Unknown Sources" box is ticked.
11. Download 'Linda File Manager' for free from the Market. Open this app and find the FlashRec file on your sdcard and click on it to install it.
12. Open the FlashRec app and click "Backup Recovery Image" and wait for it to finish.
13. Then click on the empty text box in the app and type:
14. Click on the "Flash Custom Recovery Image" button and wait for it to finish.
15. Download the following files and put them on your sdcard.
26I Radio
DangerSPL
Defanged 1.6 Base
CyanogenMod 4.2.15.1
CyanogenMod 5.0.7
Google Apps Addon
Do not unzip any of these, just put the zip files on your sdcard.
16. Reboot into Recovery (Home + Power)
17. Select Flash update from sd card
18. Flash the 26I RADIO file.
19. When that's done, flash the DangerSPL
*****IMPORTANT - DO NOT FLASH THE SPL BEFORE FLASHING THE RADIO. IF YOU DO YOU WILL BRICK YOUR PHONE*****
20. Reboot back into recovery
21. Flash the Defanged Base. Do not let the phone reboot after this is done (if it tries to reboot make sure you hold HOME to get straight back into recovery)
22. Flash CyanogenMod 4.2.15.1
23. Allow phone to boot up.
24. Turn phone off.
25. Boot into Recovery (Home + Power)
26. From the recovery menu, do a full Wipe (Factory reset)
27. After this is done, select "Flash update from sd"
28. Flash the CyanogenMOD 5.0.7 file
29. Flash the Google Apps Addon file
30. Reboot and you're done! Now redownload "My Backup" to restore your apps and data.
Another thing worth doing is using the Recovery Menu to make an EXT3 partition of 500mb on your sdcard, that way you can move all your apps to sd. But you'll need to do this stuff first before doing that anyway.