Setting Up New 3GS - Dilemma!  Help Please!

I got my new 3GS from Orange today.
My previous iPhone was a factory unlocked 3G from Italy running on Orange.
I inserted my new SIM card, plugged the phone into my iMac and completed registration via iTunes.
I have not actually activated my SIM card with Orange because they're closed until 08:00 tomorrow but the 'phone is "operational" because the on-slider is there, all the icons are there and my 'phone number is shown correctly in iTunes.
Here's the bit that worries me:
In iTunes the page states: "An iPhone has previously been synced with this computer". It then gives me 2 options: (1) Set up as a new iPhone. (2) Restore from the back up of Joe Bloggs iPhone.
I want all the features that come with a "legal" iPhone contract, I want to keep my original 'phone no. which I've had since 1996 and I would prefer not to lose all of my calendars, contacts, purchased applications etc.
Which of steps 1 and 2 above do I select and do I need to still activate my SIM card with Orange?

Restore from your backup & you should be fine.

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