PwnageTool is not the only jailbreak to get an update today. The Dev Team also updated RedSn0w to version 0.9.6b3 to jailbreak iOS 4.2.1 GM which was released earlier this week.
It's important to note that this version of RedSn0w is mostly for developers. If you aren't much of a technical person, I'd suggest staying away from it. If you plan to unlock using UltraSn0w, you must absolutely stay away from it...
Apple released iOS 4.2.1 GM to developers a couple days ago, and this new build can already be jailbroken using RedSn0w, as confirmed by Redmond Pie.
Even though the jailbreak process of iOS 4.2.1 GM is successful, it won't take you too far as Cydia doesn't work properly with iOS 4.2.1 and will crash at launch. If you know your way around the iPhone files, you can however SSH into your iPhone to manually install jailbreak applications.
Installing and jailbreaking iOS 4.2.1 GM is fairly easy, but it's worth noting you should stay away from it if you rely on an unlock for your iPhone. iOS 4.2.1 GM will update your baseband, and most likely make it impossible for you to unlock for a while.
This being said, here is how to jailbreak iOS 4.2.1 GM with RedSn0w...
No iOS 4.2 for us today, unlike many sites were wrongly reporting, mostly based on a rumor that started as a joke. Instead, Apple released iOS 4.2.1 GM to developers.
iOS 4.2 should have already shipped to the general public but a last minute bug pushed out the release. We're likely to see iOS 4.2.1 released to everyone sometimes next week...