Please Help!!! 'iTunes cannot connect to iphone update software server'

Question

I cannot 'Restore' iPhone 3G to pass on to my fiance, after she kindly allowed me to get a new iPhone4 because iTunes 'cannot connect to iphone update software server'. I have tried both our laptop and desktop - both connecting to the internet fine - but neither will connect to the iTunes store nor update servers!!
Not sure what to try next, have tried setting up new user to no avail.
I have followed the support guidance and I am not connected through proxy.
Diagnostics reported as follows:
Microsoft Windows XP Home Edition Service Pack 3 (Build 2600)
Dell Inc. Dell DV051
iTunes 9.2.1.5
QuickTime 7.6.6
FairPlay 1.8.20
Apple Application Support 1.3
iPod Updater Library 9.2d4
CD Driver 2.2.0.1
CD Driver DLL 2.1.1.1
Apple Mobile Device 3.1.0.62
Apple Mobile Device Driver 1.49.0.0
Bonjour 2.0.2.0 (214.3)
iTunes Serial Number 098625257EFAC14A
Current user is an administrator.
The current local date and time is 2010-07-25 12:16:28.
iTunes is not running in safe mode.
WebKit accelerated compositing is enabled.
HDCP is not supported.
Video Display Information
Intel(R) 82915G/GV/910GL Express Chipset Family
** External Plug-ins Information **
No external plug-ins installed.
** Network Connectivity Tests **
Network Adapter Information
Adapter Name: {F45A9B15-8BE6-4964-8534-71947B51A91B}
Description: Intel(R) PRO/100 VE Network Connection - Packet Scheduler Miniport
IP Address: 192.168.1.77
Subnet Mask: 255.255.255.0
Default Gateway: 192.168.1.1
DHCP Enabled: No
DHCP Server: 255.255.255.255
Lease Obtained: Thu Jan 01 00:00:00 1970
Lease Expires: Thu Jan 01 00:00:00 1970
DNS Servers: 192.168.1.1
192.168.1.1
Active Connection: LAN Connection
Connected: Yes
Online: Yes
Using Modem: No
Using LAN: Yes
Using Proxy: No
SSL 3.0 Support: Enabled
TLS 1.0 Support: Enabled
Firewall Information
Windows Firewall is on.
iTunes is enabled in Windows Firewall.
Connection attempt to Apple web site was successful.
Connection attempt to iTunes Store was successful.
Secure connection attempt to iTunes Store was successful.
Secure connection attempt to iPhone activation server was successful.
Last successful store access was 2010-07-25 10:25:45.
** Device Connectivity Tests **
iPodService 9.2.1.5 is currently running.

Answer 1

Right, I'm going to try something, if this works, then this'll probably fix a lot of iTunes problems.
1: Make sure your whole iTunes database is backed up.
2: Uninstall iTunes, then run "Revo Uninstaller", this will remove ALL traces of iTunes from you computer, not your library.
I've found out that when un-installing or re-installing over a previous version of iTunes will carry over some problems from previous versions, or even create problems. Registry leftovers can be a problem also. Completely removing iTunes using "Revo Uninstaller" then re-installing will have the same effect as installing iTunes from a fresh OS install. Typically iTunes should be problem free when installed totally fresh.
3: Re-install the correct version of iTunes fresh and try again.