This will bypass the error 1004. After it installs the iOS4.1 update it sends your phone into recovery mode and says you have to recover it...so its installed, so why do you have to recovery it? You dont.
If you have a mac you can download this app called Recboot. (google it)
have your iphone plugged in, and open the app. click exit recovery mode and your iphone will boot right up running the new updated version.
As far as i know recboot is still only for mac and not windows based systems.
PS - I got the 1004 error as well
OMG THIS WORKED LIKE A CHARM
Thank you SO much!! I was seriously freaking out and have no idea how to access host files. I LOVE you