Mikey,
First off, are you rooted? If not, you will be after this is done, so if that's an issue stop now. Secondly, do you have SPRecovery flashed in? If not, you'll need it for an update.zip. Otherwise you'll need to go here:
A Guide to get Froyo - for NON-ROOTED users
If you use Clockwork, good luck. I don't use it and from what I was reading when the leaks first came out it often caused a lot of issues trying to install. Instructions are floating around and I'm sure one of the Mods can point you at them a lot easier than I can.
Therefore all the instructions will be based on SPRecovery and, since I'm pressed for time, won't be super-clean, but they will be complete.
As for booting into
recovery, you need to hold down X on the keyboard and power the phone on, holding the X key until SPRecovery boots. If nothing happens and it boots normally, try again. You have to be holding the X down before the M appears -- hold it down THEN power the phone on. If nothing happens this time and you're 100% sure you did it right, you don't have SPRecovery flashed in properly. There's a great video on Youtube that will walk you through it. Alternatively, go here
http://www.droidforums.net/forum/hacking-faqs/39254-sbf-root-unroot.html and follow the directions carefully.
Installation at this point becomes relatively simple. You make a nandroid backup (instructions are elsewhere and readily found with a forum search but I know how non-effective that can be sometimes)but can be had easily for the price of another question. After that, flash your system memory and cache at least twice and many recommend three times -- that means three of the one and three of the other -- and then do an advanced nandroid recovery of the FroYo ROM.
Unfortunately, you can't do that as an update.zip, so you'll need to extract the files from the update.zip you have on your SD card's root and move them into the nandroid folder you just created with SPRecovery. Rinse and repeat, or in this case, reboot and recovery.
Don't be alarmed if the boot after the install takes forever. This is normal.
I hope this helps. If you just want FroYo and don't mind flashing in a ROM and don't want to go through the hassle (as little as it is one) to do a nandroid recovery instead of the update.zip method, I know for sure that Chevyno1's Simply Stunning is available as an update.zip and I imagine others are as well at this point.
However, if you don't mind waiting a few days, the source code was just released for the developers to hack on, so ROMs
built from source instead of just modified release candidates will be available soon. I hope.