Can't upgrade iPhone 3GS to ios4

My wife and I purchased 3GS iPhones shortly before the 4G was released. We both have identical Panasonic Toughbooks, mine is running Vista, and hers is running WinXP. Neither one of us can update from 3.1 to the latest 4.2 os.
We both have the latest version of iTunes. We both get the same error message, which is:
"The network connection time out
Make sure your network settings are correct and your network connection is active, or try again later".
I am a moderately advanced computer user, not a newbie, but don't have a lot of experience with Apple products.
There is nothing wrong with our network connections that I can tell.
When I attempt to download the update iTunes indicates that it is downloading for five minutes--I have a download meter on my PC that indicates during this time that for those five minutes I am downloading at a rate of more than 5MB. Itunes indicates the download is complete and then shows the message "Processing file". After a couple of minutes we get the message above.
I've read through the support documents on the Apple website and made sure that the appropriate ports are open.
We are past the 90 period and thus ineligible for free support from Apple.
The apple store tells us we can make an appointment with a tech who will upgrade the phones for us, but the phones will be wiped clean of all contacts, address books, apps etc.
They assure us that once we sync up again to iTunes, all these things will be restored.
I have also read on some online forums that this upgrade may cause adverse reactions to my 3GS phone, such as slowing it down considerably.
Am I being unduly concerned about upgrading? Perhaps I would be better off leaving the phone as is with the older OS?
Any help is appreciated----AARGH!

Well I spoke too soon.
The update was successful, but now I cannot connect to the 3GS data network.
Cannot get email and cannot open a page in Safari.
+"Safari could not open the page because the server stopped responding."+
+"Cannot Get Mail+
+THe mail server is not responding. Verify that you have entered the correct account info in Mail settings."+
Email and internet work fine on WiFi.........no data using 3GS network.
Looks like I will have to revert back to old OS.

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