The version numbers that Cisco puts on their home WiFi routers is in regard to the hardware used. The WRT54G v2 and the WRT54G v3 (and so on) have different hardware and so the firmware for the v3 may not work correctly on the v2.
If there are no other firmware updates for your specific router on the manufacturer's website, then it is safe to say that you have the most current version.
As far as using other firmware on the device, it is generally not considered a good idea to use non-manufacturer firmware if you want to maintain a stable router. That being said, there are a number of third party alternative firmwares for home routers for those that feel the manufacturer firmware does not offer the features they desire or the stability they need. Some of them are:
...and others. Be warned: using any of these will void any warranty you might have on your existing hardware and could "brick" the hardware if not properly installed.