The process of unlocking your Windows Phone 7 device is very straightforward and take a few seconds. However, the information about the process provided at the developer portal is inadequate and even misleading. (Mister Goodcat put up a great post explaining the issue.) The tool you will need is called “Developer Phone Registration” and is located at your computer once you’ve installed the WP7 development tools.
"C:\Program Files (x86)\Microsoft SDKs\Windows Phone\v7.0\Tools\Phone Registration\PhoneReg.exe"
Connect your WP7 phone to your computer using the USB cable that comes with the device. Then launch the tool from All Programs | Windows Phone Developer Tools, and enter your Windows Live ID and password. Done. (If your phone screen is locked, you’ll have to unlock the screen and retry it.)
Note: Unlocking your WP7 device using the tool allows you to debug and test applications on your device. The process is different from carrier’s unlock, which allows you to use a different SIM card (or service). To do so, you’ll need to contact your carrier to get an unlock code and instructions.