I have am running iTunes 8.0.2 on an iMac.
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I just got off the phone with Apple. After about 40 minutes of trouble shooting, hard restoring did the trick. For those of you like me who didnt know how to "hard restore" your iPod touch (I assume it would work the same on an iPhone) here is how you do it.
1. Turn off the iPod
2. With the home button held down, plug into your computer.
3. Release the button only when you see an iTunes and USB plug icon.
4. At that point, you should see a message in iTunes asking you if you want to restore your device.
5. Click OK and the restore process begins.