Setup as new iPhone ?

I have two iPhones, a 3GS and a 3G, both running iOS 4.1 and using iTUnes 10.1.1.4
The 3G is an old iPhone, my wife got from a friend and now I want to do a backup/sync on my computer/iTunes. This 3G has never been connected to my iTunes, but each time I try I have the options to restore the 3G from my own 3GS backup or set it up, as a new iPhone.
I don't want to delete anything my wife has on her iPhone, so I will not choose to restore to my 3GS backup - but what if I choose "Setup as new iPhone", will it delete the iPhone and restore it as a new one ?

You've got a real problem there...bigger than your inquiry. If you try and restore that 3G, on your present system, either as new or from backup, the restore process will fail. The only iOS available from Apple, for that phone, is iOS 4.2.1. iOS 4.2.1 requires iTunes 10.1 or greater, which requires OS X 10.5.8 or greater. You will have to update your OS & iTunes before you will be able to restore from backup or setup as new.
but what if I choose "Setup as new iPhone", will it delete the iPhone and restore it as a new one ?
The phone will look just like it did when first taken out of the box, with all data & iTunes content erased.

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