Directions, as provided by FLT
Quote:
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Originally Posted by FLT
FIRST: make sure you have enough battery, this update can brick your device since it overwrites the radio!!
SECOND: this method is for devices with LOCKED bootloader!
- Get the update from Google: http://android.clients.go...7-from-ERD79.a487b405.zip
- Put the update on your SD card & rename it to update.zip
- Boot in recovery mode (hold down trackball + power)
- Go to bootloader -> recovery
- Now there's a picture of a droid with a triangle
- Press the power button + volume up
- Apply sdcard:update.zip
- Updating
- Reboot system now
- Enjoy the multitouch

Hope I've helped some people who do not want to wait any longer for the OTA!
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An addendum:
For the first link, ignore the security warning. It is legitimately Google's server. They were just lazy and didn't sign the certificate or something like that.
Also, I failed to mention the features of the OTA update, they can be found here:
Nexus One | News and Updates
The highlights include
pinch-zoom for Browser, Maps, and Gallery. Also, 3G reception is improved, as well as a new
night mode for navigation.