App2sd

A main problem faced by the users is the low internal memory size. It will get filled soon this can be avoided by enabling app2sd. Normally this is not available in 2.1. But we can do this by another app called link2sd.
First of all partition sdcard into two partitions one for apps and other for all other files. Choose their appropriately.
No install link2sd and select apps that you would like to move to sdcard.

Installing update.zip

You can download many custom themes from xda-developers you can install them by xrecovery
Copy update.zip to sdcard then restart and enter xrecovery mode select install update.zip so you can install custom themes. First boot will take time. Dont forget to check the version of you have installed with the one available in he package specified in the site. If they didnt match you will not be able to boot your phone

Installing Xrecovery

Another must have app for android is xRecovery download all in one package or copy the three files into system/bin you can do this by a program called terminal emulator. Using the above app you can mount systen as rw and you can copy the file int the above folder. Dont forget to chage the permission to 777. Restart and press back button repeatedly on the sony ericsson screen. You will get xrecovery menu.
One thing to note is the xrecovery modifies the offline chargong feature file. So you will no longer be able to charge your phone offline.

Connecting phone in flash mode

In order perform flashing operations you must connect your phone in flashing mode.  This is achieved by following steps.
1. Turn off your phone
2. Press down back button
3. Connect phone via usb a green light will be shown in the indicator
Now phone will be connected in flashmode

USB Debugging

Xperia has a special mode to connect with the computer known as USB Debugging mode.which can be enabled in
Settings>applications>development>usb debugging
So your phone will be connected in debugging mode

Flashing xperia

What ever happened to your (not hardware) it can be recovered by flashing the OS.  Flashing is erasing the entire os and writing new one. 
This procedure requires two things
1. Firmware
2. Flashing tool

Now connect your phone in flash mode
Click flash and select the firmware file and click ok to start flashing..after a few minuted your phone will erased and new firmware will be writtten to the phone

Rooting xperia

Android is basically a linux file system.  Normally xperia comes without root permission to access it's system folders. In order to get access to root folder we must perform 'root' on our device..i got a tool name 'SuperOneClick' from xda.i used It to root my phone..
http://forum.xda-developers.com/attachment.php?attachmentid=485088&d=1294607042
You must connect phone in usb debugging mode..