Redmond Pie reports today that iOS 4.2.1 has been successfully jailbroken, and that a compatible version of Cydia will be available as soon as 4.2.1 reaches the public. This build of iOS can be jailbroken with Redsn0w version 0.9.6b2, the same used with iOS 4.1.
The current version of Cydia is incompatible with iOS 4.2.1 and crashes upon launch. However, a working build is ready to go and will hit your jailbroken phones by the time you've got 4.2.1 installed. Until you get it, Redmond Pie suggests installing jailbreak apps via SSH.
Jailbreaking is not for me, but if you're interested, know that you should be all set as soon as iOS 4.2.1 arrives.