How I fixed my iPhone and got the update to work...

This sounds silly, but I just kept un-docking my iPhone and then re-docking it. If the error message came up, I clicked "OK" and did it over again. After about the eighth try, it went through and my iPhone is now updated. Hope this helps.

I talked to AT&T support. They say that the Apple activation servers are down. Should be fixed "within an hour".
So much for the stupid activation scheme via iTunes . There doesn't even appear a backup to do the activation over the phone.
Apple seems to have a bad week.

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