IPhone says "Restore Needed", but iTunes doesn't recognize it. Now what?

My iPhone was sitting untouched this evening. When I woke it up, it said "Restore Needed. iPhone cannot make or receive calls. Restore from iTunes." But when I plug it in to my computer, iTunes doesn't recognize it. I have reset the phone to no avail. What do I do next?

Thanks for the reply. I tried everything suggested. Now when I try to restore the iPhone from iTunes, it says the iPhone could not be restored. An unknown error has occurred (23).
I give up.
Would it be better to take the phone to the AT&T store where I bought it, or to an Apple store?

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