colchiro
Extreme Android User
I didn't see any step by step guides so decided to create one. 
Warning: I have not tested this so proceed at your own risk.
With this guide you should be able to:
Here's the original post on XDA by Nemith: [UPDATE ZIP] Stock 1.2 update.zip flashable from CWM - xda-developers
Nemith posts two files, one that keeps your CWM (ClockWorkMod) recovery partition, the other eliminates it. I see no reason to keep recovery because we can always boot off our recovery disk or flash a new one Rom Manager.
As of this writing, I'm not aware of a pre-rooted 1.2 rom so, if you want root, you'll need to do the manual nooter process to attain root.
FORMATTING DATA: only format data if you want to delete all your apps and return your NC to the way it was when you purchased it. Google will still remember your purchased apps and will attempt to download the ones you've downloaded, when you root again.

Warning: I have not tested this so proceed at your own risk.

With this guide you should be able to:
- Return any version of a NC to stock 1.2 software version (the latest version as of this writing).
- Update an older version of stock to stock 1.2
- Repair an unbootable stock rom
- Replace a custom rom (ie. CM7/Phiremod/whatever) with the stock 1.2 rom.
Here's the original post on XDA by Nemith: [UPDATE ZIP] Stock 1.2 update.zip flashable from CWM - xda-developers
Nemith posts two files, one that keeps your CWM (ClockWorkMod) recovery partition, the other eliminates it. I see no reason to keep recovery because we can always boot off our recovery disk or flash a new one Rom Manager.
As of this writing, I'm not aware of a pre-rooted 1.2 rom so, if you want root, you'll need to do the manual nooter process to attain root.
FORMATTING DATA: only format data if you want to delete all your apps and return your NC to the way it was when you purchased it. Google will still remember your purchased apps and will attempt to download the ones you've downloaded, when you root again.
- It shouldn't be necessary to format data if coming from the B&N 1.1 software version, unless you really screwed it up.

- If you're coming from a custom rom like CM7, formatting data is highly recommended.
- Format data if you want to erase it to prepare it for a new owner. (Note: this can also be done under settings... location/security, which is much easier)
- You'll want to format data if coming from a newer version (or if it's really screwed up).
Directions:What you'll need:
- A bootable CWM recovery sd card (must be version 3.2.0.1). You can create that here: how-to make-bootable-cwm-3.2.0.1-recovery-sd-card
- The 1.2 update file w/o CWR (2nd file) from Nemith's post above.
- To maximize battery performance, make sure your battery is charged to 100% before flashing. I prefer to let it charge during the flashing process.
- Create the bootable CWM recovery sdcard from the directions above.
- Plug your bootable sdcard into your computer and copy the 1.2 update file (you downloaded previously) to it. When it finishes copying, safely unmount it from your computer by clicking on the "safely remove hardware" icon by the clock in the lower right corner of your screen. This prevents causing file system problems and should always be done when removing a usb drive.
- Remove the sdcard, plug it into your powered-down NC, press the power button and it should boot into Recovery
- (To use recovery, up/down volume buttons are used to navigate up and down, press the power button to go back, and press the "n" button to do the highlighted task. Only briefly press the buttons since it's easy to skip a step by holding down a button too long.)
- Press up or down volume button until "mounts and storage" is highlighted, press "n" button.
- use up/down to highlight "format /system", press "n"
- highlight "yes - format", press "n" (always watch for errors)
- when that finishes, highlight "format /cache", press "n"
- highlight "yes - format", press "n"
- IF FORMATTING DATA (see above description), highlight "format /data", press "n".
- press power button briefly to return to previous menu
- select the advanced menu, press "n"
- select clear Dalvik cache, press "n"
- highlight "yes - clear Dalvik cache", press "n"
- When it finishes, press the power button until "install zip from sdcard" is visible
- select "install zip from sdcard", press "n"
- select "choose zip from sdcard", press "n"
- select your update-nc-stock-1.2-signed.zip, press "n"
- highlight "Yes - install... update-nc-stock-1.2-signed.zip, press "n"
- Make sure your rom completed successfully (about 5 minutes) and watch for errors.
- When it finishes, press the power button until "reboot" option is visible. Remove your sdcard, then select "reboot system now", press "n"
- Let your nook sit for 5 minutes to settle
- If you formatted data, you'll need to do these steps:
- Connect to your wi-fi.
- Activate your NC with Barnes & Noble
- After installing a new rom, expect it to be sluggish for a day or so.
- enjoy
Thanks so much for in depth guide, very easy to follow!