After my saga last night testing both PWNAGE 2.2 and QuickPWN 2.2, the amazing iPhone Dev Team released the new PWNAGE tool 2.2.1 and have now fixed the issue with building a custom .ipsw file. Apparently, the error was because it was only meant for iPod Touch. Dev team orginally asked us to go through EXPERT MODE instead of SIMPLE MODE but instead, they released the 2.2.1 version.
I downloaded the latest release and was successful in building a custom firmware. I am going to run it on my iPhone first generation because I noticed some bugs here and there where the Insomnia app gets turned off on its own.