How to turn on BlueTooth on Apple iPhone - old model, V2.0 software

I upgraded my first generation iPhone with V2.0 software, unfortunately I can't turn on Bluetooth functionality at all - can't even get to the point of trying to pair with a Motorola headset.

I go to Settings>General>Bluetooth and move the switch from off to on. The little grey gear symbol just turns until the phone switches off automatically (about 2 minutes).

Is this a problem with the new software?

Thanks,
Gail