1st Gen iPhone...

This is all here-say at this point, but yesterday someone told me that Apple's been withholding software/firmware updates for the first generation iPhone due to the 3G iPhone's release, but plan to release those updates sometime around December and when that happens the first gen would actually be better than the 3G... anybody else hear this or at least think it's possible? If it has some weight to it I might just consider buying a used iPhone off of eBay...

Where did you hear this?

Anyway - the 1st gen iPhone is very similar to the 3G - but the 3G has a couple extra things. The 3G can do anything the original can, and ever will be able to do and more.

Basically: No, that is not true.

Nope.
a) Why would they make a device they no longer sell seem better than the device they are selling.
b) As Mark mentions, the hardware of the 3G is identical in many ways and otherwise only better.