Unable to update iPhone 4, iOS 4.2.1, iTunes 10.1 (54), Mac OS 10.6.5

iTunes notifies me that iOS 4.2 update is available for my iPhone 4.
I'm on my MacBook Pro, with iPhone 4, iOS 4.1 (8B117), iTunes 10.1 (54), Mac OS 10.6.5.
I select either 'download' or 'download and update' and get the following error message:
*There was a problem downloading the software for the iPhone "_ iPhone". You do not have enough access privileges for this operation.*
I have run *repair permissions*, rebooted the computer multiple times. I have 22Mbit Internet with a 120GB download limit with 90GB remaining.
Does anyone know what causes this arcane error? Surely the error indicates that there is a directory, most likely in ~/Library or /Library that has incorrect permissions, obviously +repair permissions+ hasn't fixed it. Does anyone know where iTunes stores its downloaded updates?

I fired up my G5 MacPro and was able to update the phone, I was also then able to determine the download location for iTunes iPhone updates which is
~/Library/iTunes
When I saw that I also noted that the permissions on that directory was Read/Write for System only, I added Read/Write permissions for Staff and then the download was able to happen.
Apple needs to amend the Repair Permissions programme in Disk Utility to ensure that the above directory ( ~/Library/iTunes ) is Read/Write for Staff or users won't be able to carry out iPhone updates.
I haven't had a chance to try the new printing features, however, my Bluetooth headset performance is dramatically improved with the iOS 4.2.1 update.

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