IPhone 4 Factory Unlock Approved by AT&T but I need a little help

Question

Today I contacted AT&T to get my wife's iPhone 4 Factory Unlocked (version: 4.3.5 firmware: 04.10.01) and I met all the requirements for getting it unlocked but the Tech Agent from AT&T said that in order for the Factory Unlock to be completed I would have to plug in the phone to iTunes and do a Backup & Restore to complete the process.
I went to do this but before proceeding iTunes said that if I completed the process that the Restore would install iOS 5 on my wife's phone which she would prefer not to do if it were possible.
I have always had a problem with iTunes.  Everytime I back it up it seems like I either loose pictures, or movies, or Apps or something and so I am hesitant to even touch iTunes let alone upgrade to iOS 5 on her phone.
I am hoping that someone can teach me how to use iTunes properly or point me to a video series that would explain all the ins and outs of the various versions of iTunes so that I can learn it lock stock and barrel or that someone will help me understand how to complete this factory unlock effectively.
Thanks in advance for any suggestions

Answer 1

Thank you ever so much!  It worked.  iTunes congradulated me on my iPhone being Factory Unlocked!  Now it brings me to my next question.  My wife wants to use the phone on T Mobile.  If she wants to do this do I follow iTunes suggestion to "Set Up as New iPhone" or do I follow the option to "Restore from iTunes Backup"?
I'm guessing that if I Set Up as New iPhone that she will loose all her apps and such.  But if that is what is needed so that it will work on other GSM providers then that is what I will do for her. 
However if the Backup option will allow her to keep everything she has on the phone and still use it on any GSM network that she would like then I will do that.
I respect your advice and follow it.  You have led me right thus far.  Thanks a Billion.