You should have no problem upgrading to 2.1, but you will have to re-jailbreak your iPhone. If it's an iPhone 2G (old/original), you'll have to re-unlock. If it's a 3G with a turbosim, you should be okay.
As with any firmware update, however, there are always risks, and using it outside a legitimate carrier means if anything does go wrong, you're on your own.
That said, tons of iPhone 2.1 out there...