The Settings > General > Software Update option only appears when iOS 5+ installed on a device, but if it's an iPhone 3G then the highest iOS version that it supports is 4.2.1 (the current version is shown in Settings > General > About > Version).
If it's not on iOS 4.2.1, then to update it connect it to your computer's iTunes and copy any purchases off it to your computer via File > Transfer Purchases (File > Devices > Transfer Purchases if you are on iTunes 11). You may also want to copy photos and any important documents off the iPhone as well e.g. via the file sharing section at the bottom of the device's apps tab when connected to iTunes, via wifi, email, dropbox etc - they should be included in the backup, but it's best to have a copy of them outside of the backup just in case. You can then force a backup of the iPhone by right-clicking the iPhone 'Device' on the left-hand side of iTunes and selecting 'Backup'.
Then start the update by selecting the iPhone on the left-hand side of iTunes, and on the Summary tab on the right-hand side clicking the Check For Updates button
iOS 5: Updating your device to iOS 5 or Later
How to install iOS 6
iOS: How to update your iPhone, iPad, or iPod touch
If you are currently running an iOS lower than 5.0, connect the iPhone to the computer, open iTunes. Then select the iPhone under the Devices heading on the left, click on the Summary tab and then click on Check for Update.
Tip - If connected to your computer, you may need to disable your firewall and anitvirus software temporarily. Then download and install the iOS update.
You posted in the iPad forum instead of the iPhone forum. I'll request that Apple relocate your post.
hi could anybody help me i too have this problem i have a 2nd hand iphone 3g and just want to be able to post photos onto facebook but i keep getting the update software option but it wont let me do it,i checked the versions section and it says my phone has the 4.2.1,does this mean i cannot update it at all even through itunes just to be able to do basic things like posting pics onto facebook?