MuscleNerd of iPhone Dev-Team has confirmed today that the next version of Redsn0w will include an option which will allow you to untether your iPhone jailbreak on iOS 4.2.1 without having to restore your device.

MuscleNerd: Thanks to comex, redsn0w can now handle much bigger files than ramdisk 25MB limit. Useful for "backup plan" 4.2 untether
MuscleNerd: @jkurtz87 it shouldn’t require a restore…just another redsn0w run. (That’s the goal!)

The advantage of this will be that you wont have to reinstall any of your iTunes’ or Cydia apps. All you ever have to do will be rerun Redsn0w jailbreak and it will be done!

Expect this new version of Redsn0w for all iOS devices to be available somewhere around the Christmas eve, followed by iPhone 4 unlock on newer basebands in January. We will of course let you know as soon as it is available for download.