Trying to update my iPhone 4 - "This version of iTunes is the current version."

When I click "Update" in the phone screen on iTunes, it tells me that this version of iTunes (10.6) is the current version. I tried to download 10.7 and it cannot be downloaded to my OS, apparently.
Then I tried to restore my phone. It told me it was unable to be restored.
I'm currently still in iOS4. I really just want to update the iOS on my phone and I feel like I've exhausted my options. Any ideas?

I'm using OSX 10.5.8, I just bought this OS and upgraded from Tiger two years ago in order to use my phone in the first place - I find it a bit ludacris that a two year old OS is considered too old for their software. Am I downloading it from the right place? I was linked through to Apple's website from another thread here.
What OS is compatible with 10.7?

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