Error 1600 is reported by many users who tried to restore the custom iOS 4.1 firmware cooked with PwnageTool. As you know PwnageTool lets you to install the latest iOS firmware without changing / updating the baseband and if you don’t rely on unlock, the best solution to get rid of error 1600 is to use the other available jailbreak tools like Redsnow, Greenpoison and Limera1n.
Solution is simple. Retry after putting the idevice into DFU mode properly. So, you should make it sure that you press the correct buttons in correct order and release the specific button after specific time to get into DFU mode and to avoid such problems.