Thanks for this, but I'm still having trouble getting my iPhone out of recovery mode. Here are the steps from J Galvin:
1. Click Here to download RecBoot.
2. Plug your iPhone into your computer.
3. Quit iTunes if it is open.
4. Launch the program RecBoot Exit Only.
5. When the program launches, click the button that says Exit Recovery Mode.
6. You will get a message that says Awake My Pretty and your iPhone will now be out of restore mode.
7. Leave the iPhone plugged into the computer and launch iTunes.
8. It will now tell you it has detected a new iPhone and it will give you the option to set up the new phone or to restore a backup. Select the option to restore your last backup.
9. Let the backup proceed. This could take a while depending on how many apps, videos, songs, etc. you have.
10. Once this process completes your iPhone will work again and you will be at version 4.0.1.
The problem I'm having is that at step (7) iTunes automatically launches and displays the same error message as before: "iTunes has detected an iPhone in recovery mode. You must restore this iPhone before it can be used with iTunes." I even tried force-quitting iTunes before it fully loaded, but that made no difference.
Can I ask what your iPhone looked like after you ran Recboot's Exit Recovery Mode?