IPhone3G got stuck on connect to iTunes screen while doing upgrade iOS 4.2

Right after my iTunes 10.1 downloaded the iOS 4.2, it automatically started installing and sync-ing to my phone as usual.
It restarted itself, apple logo came out and ...
1. Stuck on "connect to itunes" screen eventough it was connected for the whole time. Unplugged it and plugged it back in, still got the same screen.
2. Neither my PC or itunes recognize it at all.
3. Unable to do soft reset but hard reset is ok. When i turn it on, the same screen comes out after the apple logo and got stuck until it turns itself off in about 30 sec.
3. Tried to connect it to the usb/itunes many different ways when the "connect to itunes" screen is on, but still got the same result.
4. Tried to do factory reset by holding the home button and connect it to the usb until the itunes recognize it, but still no luck (u can be sure on that it was properly done since it's not the first time i'm doing it).
FYI: the phone has never been serviced or customized.
Need some help ASAP here ppl. Please!
Message was edited by: Barsaa

I'm having the same problem too. I've been trouble shooting it based off advice from Apple's website and other people's information but so far nothing has worked. When I turn it on, it says connect to iTunes. I do. When I can get iTunes to recognize the iPhone is plugged in (which I seem to be able to only do when I stop and restart the Apple Mobile Device service), it says the phone is in recovery mode and has to be restored. I go through the process and so far it always stops on the "preparing iPhone for restore" process. Then I get the following error message ... the iPhone "iPhone could not be restored. An unknown error occured (1604). I seem to keep getting the 1604 and I haven't found a workable resolution yet for it.
If anyone could help, I would be so appreciative.

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    Microsoft Windows XP Home Edition Service Pack 3 (Build 2600)
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