I Hope Folks Can Chill.
I know this is really frustrating for a lot of people (me included). But my recommendation is -- if you are getting torqued, just take a break and try again later. If you're willing to put up with the hassle of time and some glitches, then recognize that is the way it will be for now, but you may be able to get through the process, just slowly.
I think I'm finally there (how? see below).
If you haven't started the update to firmware 2.0 and you are faint of heart, just wait until things quiet down. (See earlier post -- the Bugs Life moth-to-flame analogy..."But it's sooooo beauuuuutiffffulllll!!!) BUT! -- be aware -- Just because you get can USB in your phone and get the availability of the 2.0 software download to show is far from a guarantee you will complete the process with no potholes, at least right now.
I plugged in right off the bat this morning, went fine through software download, backup, preparation steps, then lost connection to iTunes Store. I'm one of the many who hung during the "accessing the iTunes store" progress bar, with the warning message that the network connection was lost and to check my network (obviously not the issue...). Phone dead, showing USB connect icon. Hard restart failed. Nada. Panicked. Spent more than an hour on hold with Apple support (going to this blog to pass the time), finally got a very courteous (if overworked) agent, who verified (surprise, surprise) that the iTunes servers were simply overloaded.
I followed the suggestions from earlier in the thread and clicked back and forth between my music library and my iPhone in the Devices list everytime the connect attempt timed out, to re-trigger the attempt to connect to the Store, and after many tries (1.5 hours?), I got connected, got my sync completed...but it interrupted again. I'm trying to figure what, if anything, didn't finish up, and once again I can't get the iTunes Store handshake to finish it off. However, my restore was successful, the new firmware/software is there, and it appears functional so far. My phone and mail, music, vids, calendar, contacts, photos, are all back. I was able to download 1 3rd party app so far (Facebook; works fine. Cool.)
Finally, I hope some posters will stop flaming each other and ease back on the criticism. It's okay. We'll get through it.