According to the iPhone wiki:
Custom firmware update fail (PwnageTool until 4.0.1). You have to restore the device with a custom firmware. Update to a custom firmware isn't working. Device isn't bootable. 2
USB Problem. Check the USB connection and try other direct ports or maybe the USB cable is an older one. Device isn't bootable.
You're trying to 'update' to a beta firmware instead of performing a restore. Device is still bootable if you kick it out of recovery mode.
Rebooting your Mac or PC may resolve this issue.
Root file-system partition size was set too small in the ramdisk's options plist.
Custom firmware restore fail (PwnageTool since 4.1). You have to put your device into the DFU mode and not into recovery mode. Device won't boot correctly an stuck at the Apple logo after the error. Press and hold power and home button until it reboots.
Error when using Sauriks server for a restore with iOS 5.x in the recovery mode at least on a A5 device.
This error can also happen when you try to restore an iPod with hardware dfu. Use iREB r5 to solve this.
You are trying to update to a beta firmware without UDID activation.