There has been a lot of confusion about whether or not first time homebuyers can use their tax credit to fund their downpayment. The answer is YES, but with a small catch. Only buyers who get FHA loans are eligible to do this, but they must have the required 3.5 percent down payment on their own. (The tax credit would be used on top of the 3.5 percent).
I hope that clarifies things for anyone who was confused. There also is a movement to expand the tax credit to all consumers and to increase it to $15,000 from the current $8,000. I will publish a post on this soon.