Whether or not you'll need to change your iPhone's settings to get it ready for tethering depends on what version of the operating system you have.
When your iPhone is connected to iTunes using a USB cable, you'll see your operating system number displayed.
You can also find out using your iPhone by going to 'Settings' then 'General' then 'About'. You'll see your operating system number displayed.
No need to do anything - you're all set up.
When you connect to iTunes, you'll be asked if you want to update your carrier settings. Accept the new settings and everything will be updated automatically for you.
You need to upgrade your iPhone to Operating System 3.1.3. You can do this by connecting to iTunes and downloading the latest version of the operating system when you're prompted to.