ITunes 8 / 2.1 upgrade killed my iPhone 3g.

I have today upgraded my iTunes to v8, then upgraded my iPhone to v2.1, the end result is an iPhone stuck in recovery mode that will not restore (unknown error code 13) plus the loss of my iTunes library (completely empty.
I dare not plug in my iPod!
Have started going through the Apple troubleshooting and trying the device in various USB ports to no avail.
If anyone else finds themselves in the same predicament and finds a solution, i would be most grateful.
Until now it has been a brilliant piece of kit, but is now rendered useless!

I also updated my iTunes to version 8, then downoaded the iPhone update version 2.1. (I had to reboot in between because my phone was not recognized after the update) After the download of 2.1, my phone got stuck in Recovery mode. I tried restoring to no avail. After reading a few posts of people with same issue, I logged on in my "guest" account (same computer) and the restore worked fine there. However, this meant I lost all of my settings and historical data like usage and other stats. I logged on with my regular profile and had to erase and sync the phone.
It is a mystery to me how we can restore from a back up instead of the default "factory" restore... I mean, it takes forever everytime we plug in our Phone for the back up to occur, it would be nice to be able to use it when needed. Again, after much searching, i found this link on Restore http://support.apple.com/kb/HT1766
So I tried to restore using my own profile since this is where the back ups are stored. Again, my phone failed to restore and I was back as square one.
What i suspect is that there is a file corrupted on the account we use to sync iPhone. Likely corrupted by installing iTunes8... This is why restore works on other computers or other accounts on same computer.
There might also be a USB connection issue. While syncing after the 2nd restore, it stopped in the middle saying my iPhone was no longer plugged in. I checked the connection and it was tight, the phone hadn't moved during syncing...
Not impressed with this upgrade

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