How to Root, flash a ROM, theme, and install a new Kernel in 16 easy steps:
1. Download
SoupOrRoot 2.04 to your computer and follow the directions in that thread.
2. Download Titanium Backup and ROM Manager from the android market.
3. Update any apps that need it.
4. Use Titanium Backup to backup your apps (it will save all the info to your SD card)
5. Open ROM Manager on your phone and select "Flash ClockworkMod Recovery"
6. from ROM Manager, select "Backup Current ROM". (name it something like Froyo, Stock, etc. so you will be able to go back to it if needed).
7. reboot, then use ROM manager to select/download a new ROM from the "Download ROM" section. popular ones are CyanogenMod, BuglessBeast, LiquidFrozenYogurt, and UltimateDroid. many others are available around the web, but 4 are tried and true.
8. turn your phone off and reboot into recovery (hold physical keyboard "x" + power button), navigate to the "nandroid" section using the D-pad, click "restore" and make sure your backup is there. if it is not; reboot, go back into ROM manager, and try to make another backup, or backup directly from the recovery screen (this will not allow you to use custom names).
9. use DEL to get back to the main recovery menu and select "wipe data/factory reset" and "wipe cache partition", i run the wipes 2-3 times each but it is not absolutely necessary.
10. go back to the recovery home screen and select "install zip from SD card" and select the one you downloaded in ROM manager. your new ROM will begin installing.
11. once it has finished, reboot your phone and make sure everything is working properly.
12. use ROM manager to create another Backup, remember to use a name you will recognize (i suggest the name of your new ROM). if you are not going to install a different kernel or theme, skip to step 16.
THE FOLLOWING STEPS ARE ONLY NECESSARY IF YOU WANT TO INSTALL THEMES AND/OR NEW KERNELS.
13. theming your new ROM is the next (optional) step. you will likely need to download the theme from the internet, although ROM manager does have some built in that you can choose from. MAKE SURE THE THEME YOU DOWNLOAD WORKS WITH THE ROM YOU ARE USING!! download the zip file to your SD card, and reboot into recovery and select "install zip from sdcard" just as you did with the ROM.
14. reboot, test, and create another backup with ROM manager. if you are not going to install a new kernel, skip to step 16.
15. installing a new kernel is the last (optional) step. there are a few available in ROM manager for download to your SD card and even more floating around the web. keep in mind that all droids are different, while some can run ultra low voltage 1.2 gHz kernels and some can't even run standard voltage 800mHz ones, so you will probably have to try a few and see what works for you. THIS IS WHY BACKUPS ARE IMPORTANT! i also recommend saving several kernels utilizing different speeds, voltages, and developers to your SD card so that if one causes you to go into a boot loop while loading, you can simply reboot into recovery, load the next one, and try again. once you have chosen a few you would like to try, reboot into recovery, select "install zip from sdcard" and load the kernel.
16. if everything is working well, reload your icons and account settings, create one last backup and enjoy! if not, reboot into recovery, select "nandroid" then "restore", re-load the last working backup, and try again.
REMEMBER THAT BACKUPS ARE YOUR BEST FRIEND!! When installing a new ROM+theme+kernel, i end up with 4 backup images on my SD card. As an example; i currently have backups named Froyo, BuglessV5, BuglessV5Themed, and BuglessV5Chevy1.1ULV. As long as you have a working image to fall back on, there is virtually no chance of "bricking" your device.