Need helps with recently bought iphone 3G

I bought an iPhone 3G 8GB from ebay recently. It was stated as legally unlocked by Telstra (Australian's carrier). I bought this as a present for my sister to be use in Malaysia. When I inserted a Malaysia's SIM card, this iphone give me 'Invalid SIM' status. When I connected it to iTunes, the itunes told me that the SIM card is not compatible. What should i do?
Oh, this is a second hand item. The seller has used it for one month. When I opened itunes, it does show the seller name.
I read around that everytime you insert a new SIM card, you need to restore the iphone through itunes. Is that so? Will the restoration make my iphone become lock again? And how do I restore? Just click the restore button on iTunes?
Wouldn't it be a pain in the *** if you have to restore your iphones everytime you inserting a new SIM card? Can't it be easier? I thought if the iphone is unlocked, you just have to insert you SIM, and you're ready to go.
I'd appreciate if anyone could guide me through this. Thanks

Ok I've called Telstra, and they've confirmed that my iphone has certainly been unlocked by them. I've tried to restore it last night, and when it's complete, I inserted my Malaysia SIM, but it still gives me the 'SIM not compatible' message. Worst, I can't get to 'Home' now. When I turned on the iphone, it gave me this pic of white cable and itunes, asking me to connect to itunes. I can only make an emergency call now. If I inserted my SIM and connect tu itunes, it gives me the message above, but if I do not insert my SIM, the itunes will give me error message asking me to insert SIM. Basically that's the only thing I can do now with my iphone.

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