OK I ended up staying up til 5am last night figuring this stuff out.
I used the super easy rootyourdroid.info guide to root my droid. Someone posted the link above.
This is where I kinda got stuck because in order to install the nandroid backup all the tutorials I found required using the SDK to do android debug bridge. I have a Mac and all of the instructions I found were for a PC. I just could not figure out how to translate the commands I was finding there for the Mac Terminal.
But then I discovered the droid root tools in this thread:
http://androidforums.com/how-tips/3...tive-multitouch-browser-ported-milestone.html
Which basically allow you to just click a bunch of pretty buttons on your droid rather than connecting from your computer and pushing really weird unix commands to it. That worked like a charm.
From there I booted into recovery which was no longer stock but SirPsychoS's recovery. For those who haven't gotten this far yet this is where you access the nandroid people are talking about. I then made a Nandroid backup of my phone which was super easy. Rebooted.
From there I mounted my phone to my Mac, dropped a ROM into the root directory named update.zip (It was Petes Bugless Beauty). Rebooted into recovery and selected install, then selected SD Card update.zip. A few lines of text scrolled by and it said it was done, so I then rebooted.
OH NO... I BRICKED MY PHONE!... The rom included the new Nexus one boot animation and the phone would not get past it...
...good thing I made that nandroid back up.
Rebooted into recovery mode, and recovered from last nandroid backup. Rebooted and my phone was fine. Turns out some of my applications that I had updated before rebooting hadnt finished because my antivirus was scanning them. So I deleted the antivirus software, allowed all my apps to update and then tried again.
But while I was waiting I found Pete's bugless 800mhz OC ROM, So I dumped the original and tried this one out. Repeated the mountain steps above but for the new ROM... and... It worked!
I am now running a rooted droid overclocked to 800mhz, with Pete's Bugless Beauty ROM, the milestone multitouch browser and WiFi tethering. Hooray.
Sorry for such a long winded victory post but it had its purpose. Lots of people make it sound like if you hit a snag and get stuck while trying to root it means you shouldn't continue like its some sort of natural selection. I disagree. So long as you read the hell out of a bunch of different tutorials and know what it is you are doing to your phone and what the dangerous parts are I say go for it.
Another reason I got so wordy with this post is because all I ever really see are posts with people saying 'So I rooted... followed this tutorial... it was easy'. This wasn't the easiest thing in the world I've done but I got through it and hopefully this post can help someone of similar skill level get through it easier.
One last point! As soon as possible MAKE A NANDROID BACKUP. Had I not my phone might have been bricked, or it would have at least taken me alot longer to fix it.