Official Android 2.3.4 update for the Nexus One is pushing out, some users have already got it via OTA. Nexus One owners should pull over to the side of the road and press Menu > Settings >About Phone > System Updates to get their 2.3.4 now. Or, ya know, just be normal and update when you have a chance. Or You can Manually Update Nexus One to Android 2.3.4.
Here are the Instructions:-
1. Download the update from here.
2. Rename the file to update.zip. Note that if you’re using Windows, just rename it to “update” (no quotes, of course) because it’s already a zipped file.
3. Copy the update.zip file onto your microSD card.
4. Now switch off the Nexus One, and now hold down the trackball and press the power button.
5. You’ll be booted into a white screen with three Android robots on skateboards. Select “Bootloader.”
6. On the next screen, select “Recovery.”
7. Your phone will reboot, giving you a picture of the Android robot and an exclamation point inside a triangle.
8. Now press the power button and volume up button at the same time. It could take a couple of tries.
9. Now (using the trackball this time) choose “Apply sdcard:update.zip” and let things run their course.
Thats it! Now you are on the Android 2.3.4
Via-Androidcentral