iPhone 2.0 Full Erase Contents & Settings
You must be running iPhone software v2.0 to use this feature.
To Determine which version of the iPhone software you are running..
1) On the iPhone, go to Settings, then select General.
2) Select About.
3) To the right of Version, if you iPhone's software version.
If you are running v1.1.4, you will need to connect your iPhone to iTunes and select "Check for Update". This will update your iPhone from the older software to the newer software. This will also allow you to take advantage of the Full Erase feature, which is not available in earlier versions of the software.
On your iPhone running software version v2.0
1) Select Settings, then select General.