I've been using the Cisco 7940 and 7960 phones for a while now. That's why I was so surprised the other day to find a handy way to do a factory reset on them. I don't know how I could have missed it all this time...
Simply hold down the # key while you power-cycle the phone. (If you already have the SIP firmware loaded, simply press * and 6 and Settings at the same time, and the phone will reboot. Then press and hold the # key while it boots.)
After a second or two, the phone display will say:
Reset key sequence detected
The headset, mute, and speakerphone lights will cycle. Now, simply press the following keys:
1 2 3 4 5 6 7 8 9 * 0 #
Now, the phone will ask you whether or not you want to save your network configuration. I usually press 2 for no.
Save network cfg? 1=yes 2=no
The display will then say:
Factory reset initiated
and the phone will continue to boot. There you have it -- a quick and easy way to do a factory reset.