How can I update my iPhone 3 iOS

iOS 4.2.1 is the highest version that will work on the iPhone 3G.

Here are some of the sites and techniques for finding compatible apps for older iPods which have been discussed in the forums here:

Vintapps 3.1.3 - paid app.

Apple Club - filter apps by iOS version.

Discussion post by msgarmar - technique to sort apps by date.

iOS Search - search the iTunes store for compatible apps.