TS3694 1015 error code, what does it mean and how do i fix it?

I bought a Iphone 3G for my younger son. I have attempted to restore and update the phone to errase all of the previous owners information, photos ect. It seemed to get about two thirds of the way through the process before showing an error code 1015 and now the phone is not usable. The screen on the phone now only shows the "connect to itunes screen", connecting to itunes only gives the option to restore until eventually showing the error code again after attempting the restore process!!??
Has anyone come across any of this before!? Any help would be much appreciated.

The article you linked from shows the information for that error code.
The required resource cannot be found: This alert message occurs when your device has a newer version of iOS than what is available in iTunes. When troubleshooting a device that presents this alert message, go to Settings > General > About and check the version of iOS on the device. If it is newer than the latest released iOS version, the device may have a prerelease developer version of iOS installed. Installing an older version of iOS over a newer version is not supported.
Error 1015: This error is typically caused by attempts to downgrade the iPhone, iPad, or iPod touch's software. This can occur when you attempt to restore using an older .ipsw file. Downgrading to a previous version is not supported. To resolve this issue, attempt to restore with the latest iPhone, iPad, or iPod touch software available from Apple. This error can also occur when an unauthorized modification of the iOS has occurred and you are now trying to restore to an authorized, default state.
You can try recovery mode: http://support.apple.com/kb/ht1808
Where did you buy this phone?
EDIT: Also, if it is actually showing the iOS that you describe, then that's a huge problem.  3G has a maximum iOS of 4.2.1, anything else is a jailbreak.
EDIT 2: Just like KiltedTim said... It's jailbroken, you got scammed, go get your money back.

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