ITune keeps asking me to restore IPhone 4 after error in updating OS 5.0.1

My IPhone 4 froze while updating to OS 5.0.1. I guess this was because I updated ITune first and without restart Windows 7 I atttempted to update IPhone. I got an error message code "1603" So I push Power button and Home button at the same time to return from the freeze. And, restarted the Windows.
After rebooting, I connected my IPhone to the PC, ITune promted and asked me restore it with options 1: restore from backup and 2: restore as a new phone. At that time ITune did not recognize my IPhone to be the Apple device that it synced all the time. Because I afraid to lose any data in IPhone, I chose " Option 1: restore from Backup. Succefully, I got all data: photos, email message and contacts, but music and apps are gone from my IPhone.
So I reconnected my IPhone to the PC. Then ITune asked me to restore it again and again.
Currently, ITune library contains my apps and songs. All I want to do is let ITune to recognize my IPhone and sync with IPhone so my IPhone gets the apps and song again.
Please help me. Is it OK to choose "Option 2: restore as a new phone"? Will it erase all apps and songs in ITune Library or transfer them into IPhone?
Thanks,

IMHO I've found a solution!  (after reading more on the varios boards I did):
1. Dissconected the iPhone from the computer
2. On the iTunes Edit -> Preferences -> Devices (TAB)
3. Erased all of the listed Backups  (NOTE! I did backup the iPhone 15 times already ...)
4. Clicked the Rest Synched History button
5. Connected the iPhone to the computer
PRESTO!  Now it synched some apps and music and allowed me to use the iTunes on my computer as always.
Thanks for everyone that helped me figure this out! 
Hope this helps ...

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