Is it better to register iPhone on iTunes or restore backup from iPod Touch

I just got an iPhone 3gs. When I plug it into computer USB and iTunes is open, iTunes asks me if I want to register it as new iPhone or if I want to restore from my last iPod Touch backup. I'm not sure which one I should do, because I actually do want to transfer all the apps from my iPod Touch to my phone as well. So if I choose restore from backup, all the apps would be placed on the phone, correct? But I'm not sure if iTunes will or will not recognize my phone as a phone afterwards. Will it recognize it as the iPod Touch after that?
I basically need to know:
A) If I should register or restore from backup
B) How to transfer apps from iPod Touch to iPhone [I did already transfer all purchases to iTunes from iPod Touch]
C) How do I transfer contacts from Outlook to my iPhone?
Any help is MUCH appreciated!

set it up as a new device.

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