HT201210 my Iphone was working fine and then I plugged it into Itunes for the update and now it says I have to restore to orignal factory settings.  I will lose my contacts, photos and anything else I have loaded over the past two years.  REALLY?? WHY

This is so frustrating!  I plugged my Iphone 4S into my computer to update it via Itunes and now it says I have to restore to factory settings and will lose all of my contacts, photos, and applications I have downloaded.  All I was really wanted to do was delete photos that uploaded from my home computer and took up all the space on my phone!  GRRRR I hate this

If you are using the iphone as designed then you should lose very little or nothing.
You should be syncing contacts with your computer regularly, so all of your contacts should be on your computer and you can sync them back.
You should be importing all pics taken with the iphone to your computer regularly as you would with any digital camera, most especially before any attempt to update.
You should be transferring all purchases made on your iphone to your computer: File>Devices>Transfer Purchases
You can redownload some itunes purchases in some countries:
Downloading past purchases from the App Store, iBookstore, and iTunes Store

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