IPod touch - more elegant way to sync to a new library?

Question

I recently had to change the motherboard in my machine, and took the opportunity to upgrade the machine and put on a fresh install of the OS.  I had expected my iPod touch to work like every other device I've had and just sync with a new install of iTunes (ie pull everything off the device and onto the host machine and be up and running without further action required), but unfortunately it gives me an error saying:
This iPod "..." is synced with another iTunes library.  Do you want to erase this iPod and sync with this iTunes library?
When I click cancel it lets me do most of what I'd like, but unfortunately it won't let me do a firmware update (from 4.3.4 to 5.1.1) as it says that:
There are purchased items on the iPod "..." that have not been transferred to your iTunes library...
I have done a backup of the device successfully, so I'm guessing that I can say yes to the 'erase the iPod' prompt and then just restore it when complete, but before I do that I want to be 100% sure that this process will back everything on the device up (ie after the process will the device function identically to what it is doing now).  Unfortunately the backup process just completes without providing any details, so I have no way to verify that and would appreciate more detail on this front (or if it will restore the link to the old iTunes library as well, at which point I will have just wasted my time)?  As such, I havn't been confident enough in this process to go about risking the erasure.
The other thing I am wondering is whether the syncrhonization process and/or backup functionality store system level settings as well or just the data?  For instance, entering my WPA2 key was a royal PITA when I first got the device as the UI isn't really well designed to handle long, cryptic encryption keys (no way to show the characters as you enter it (ie can't double check it before clicking okay), no way to paste it from an email, etc.) and I don't particularly want to go through that process again.
Ideally, I'd like to find a more elegant way around this (ie I'd really like to avoid having to wipe the device) as this is kind of a ridiculous process to have to go through for such a simple task.  If it helps, I still have all of the old files (the new OS and iTunes were installed on a new HDD, so the old iTunes folder/data is still on the old HDD (can't boot to it on the new hardware, but Ican access the raw files)) so if there is some way to convince iTunes to just load up those files and be done with it I'd be very appreciative.

Answer 1

You need to:
Transfer iTunes purchases by:
http://support.apple.com/kb/HT1848?viewlocale=en_USiTunes Store: Transferring purchases from your iOS device or iPod to a computer
- Transfer othre music by using a third-party program like one of those discussed here:
Copy music
- To retain app data and other information, connect the iPod to yur computer and make a backup by right clciking on the iPod under Devices in iTunes and select Back Up
- Restore the iPod from that backup
Note that the Backup that iTunes makes does not include synced media like apps and music.