Swizz,
Thanks for the time taken for posting this guide and still replying to messages in this thread.
A few days ago I bought a used T-Mobile G1 to be used as a WiFi enabled PDA in the USA and as a phone when visiting my home country. In order to have a clean phone, I performed a hard-reset, not realizing that you need a mobile account w/ a data plan to activate it. However, knowing that this is Linux after all, I was pretty sure there is a method to activate it on WiFi.
Then I found this guide, and a couple others, which were essentially similar. So I went on and followed the instructions - at firts, no firmware update since I passed the "reboot" test. But no matter what I did, I was stuck at the "No SIM found..." message. Then I tried the full method you described, including the RC29 install, but same thing.
After a few hours of trial and error, I decided to plug in my foreign SIM card an repeat the steps. Surprisingly (or not...) this time things went smooth, and I was able to activate on WiFi.
So let me just suggest you emphasize the requirement for a working SIM card in order to activate the G1 using this guide!
One more thing - after updating the RC29 image I got the installation successful confirmtion message and a line asking me to press the "action key" to continue. Now, what the hell is this "action key"??? Whatever it is, the G1 seemed to got stuck and I was unable to do anything. In order to reboot I actually had to remove the battery! No idea why it was stuck, but luckily a simple unplug/re-plug worked out.