It’s not a small step either, they have full on read access to the entire drive. They have also figured out that installing the WiFi iTunes store app on older firmware won’t work, because if it did, they probably wouldn’t even bother hacking 1.1.1.
They are still missing executable and shell access. Now that they can see everything it should make gaining those two a lot easier and a lot quicker, I don’t know for sure though, as I am not nearly as apt at programming or hacking as these folks.
These iPhone and iPod Touch hackers truly are geniuses. One last piece of relevant news, the entire 3rd party applications scene has died, it was like a high school party with booze, speed, E and all that other fun stuff and then firmware 1.1.1 showed up like the police S.W.A.T. team and shut everything down. Hopefully all that will pick back up with updates to all the old apps so they will work with the new firmware once they finish hacking it.
iPhone 1.1.1 File System Acessed, Hacks Not Quite There [via Gizmodo]