I need to clarify one thing. I have a jailbroken iPhone running iOS 4.0, and I need to update it to iOS 4.2. Will there be any problems with jailbreaking when I update to iOS 4.2?
Any suggestions will be very much appreciated.
Upgrading to a new version of iOS will remove an existing jailbreak. So yes, if you update your iPhone from iOS 4.0 to iOS 4.2, it will be un-jailbroken.
After you complete the update, you will need to jailbreak the phone again, if you so choose. There are jailbreaks available for iOS 4.2, but I haven't tried any of them personally. (I stopped jailbreaking my phone when Apple allowed third-party apps.) You're on your own to find them because I don't think that type of content belongs on Stack Overflow. If you can't find one using Google, you have no business jailbreaking your phone in the first place.
Also, you seem to be confusing iOS with the SDK. An SDK is a Software Development Kit, which is provided by Apple to developers. There are different versions of the SDK corresponding to the different versions of iOS, but the iPhone (or iPad/iPod) does not actually run the SDK. It runs the software called iOS; you as the developer install and use the SDK to write iOS applications on your Macintosh.
Therefore, it doesn't make any sense to jailbreak the SDK. What you jailbreak is the operating system (iOS) running on your mobile device.