This is what I've tried:
I'm on a jailbroken Ipad 3.2
I've got SHSHs on file at Cydia for 3.2, 3.2.1 and 3.2.2
I've downloaded the 3.2.1 firmware: iPad1,1_3.2.1_7B405_Restore.ipsw
In itunes 9.1.1.1 I go to the connected iPAD and do a "shift-click" on Update.
Than it allows me to select the downloaded 3.2.1 firmware
I've modified my hosts file by adding: 74.208.10.249 gs.apple.com in order to use the SHSH from Cydia instead of validating the firmware directly with apple.
However on this last step things go wrong apparently as I get an error message that the update cant be validated by Apple.
Looking at the file name of the firmware there is a hint this file can only be used to restore the IPAD, and I've restored following the process above succesfully in the past, so I'm pretty sure that will work it's just I would prefer to update instead of restore.
The thing I'm not so sure about is how different a restore from an update actually is, given that I've updated the ipad and have al ipas on file.
Maybe I'll just restore to 3.2.1 and see where this gets me unless someone can provide some insight into doing the update.