The iPhone 3g cannot be updated past 4.2.1 however, the iPhone 3gs (notice the "s") can update further. This topic pertains strictly to the iPhone 3g and not the 3gs, therefore making your suggestion of simply updating impossible. And hey... I've already tried updating just like everyone else.
This is a huge let down. I've been using Skype on my 3G for a long time without any problems. I recently purchased some Skype credit. Will I be able to apply for a refund? I suspect that consumer legislation in the EU would suggest that I might.