Make sure to do a full sync and backup before trying to update. For good measure, do another manual backup by right-clicking on the device icon in iTunes and choosing backup. Now try updating to iOS 5.
SOLVED! I went and edited the Hosts file which had some weird lines that said Block Adobe because I had a cracked Photoshop so I deleted those and there was one line that didn't have a # before it so after I did those things I was able to restore and update.