Following are the requirements (achieving some of the individual requirements is beyond the scope of this hint but can be easily be found on the Internet).
- An iPhone 3G running iOS 4 WITH jailbreak
- Wallpapers activated during the jailbreak process
- Some way of copying files to the iPhone (I used ssh access)
- A .png file with a resolution of 480 * 320 pixels (Preview can convert .jpg files to .png)
Name the .png file 127.png (or if you have multiple files name them 128.png, 129.png etc.). And make a copy of the file named 127.thumbnail.png, and then copy both files to the iPhone into this directory: /Library/Wallpaper/iPhone/. You can experiment with making the thumbnail images smaller if you prefer.
That's it, now when you enter the Wallpaper menu on your iPhone your image will appear.
[crarko adds: I haven't tested this one. I personally do not endorse jailbreaking your iPhone but I understand many people have done it.]

