Updated to iOs5 lost everything! Help?

So I updated my phone to iOS5 and this is what happens. I lose everything. Cannot restore from backup, nothing. Heres the rundown :
This is the message I get when I plug it in
"iTunes was interrupted while restoring the contents of the iPhone “Gayla's iPhone”. Would you like to restore this iPhone again now?"
So I click "Continue Restore"
Then I get this "An error occurred while restoring this iPhone (-50)"
Whenever I try to restore it from the back up from earlier, it says that it is not compatible and that I cannot use it, or that it is corrupt.
So I click Restore and of course it erases everything (there is nothing on it anyway because it already erased it all)
So we go through that process then I get this :
" The iphone could not be restored. An internal error occured." ( of course it did...)
The back up is on here, because whenever I go into prefference > Devices.. I can see the back up and its what I need but I cannot get it to my phone. How do I get it on there.
I have one idea but I don't know if it's the right one,
Restore it to the older/latest version of iOS that I had (not iOS5) and then restore it from the backup, THEN try to the update again.
Is that right or is there an easier way to do this? Really appreciate your help, as I have lost everything, text message, apps, contacts, pictures. And this is stuff that cannot be replaced.

I understand that this is a board dedicated for iPhone users but I can't find any other posts that mentions this mess!!!  I just updated my iPod Touch 4th Generation to iOS 5 and lost all of my music, videos, and apps, and only restored my photos.
I called Apple last week and they assured me that this update will NOT delete any of my data and FML it did!
I always sync/backup my iPod with my laptop --- I assumed that this also backs up my music library into a compressed file somewhere...so I clear out all my music on my iTunes because 1,000 songs really slows down my laptop. 
Now I'm left with nothing!!!!!!
I went to the App Store through my iPod and it has all my previously purchased apps ready for me to re-install.  Went to iTunes through my device, tried to reload music that I previously purchased and it notified me that I bought it before...and asked me if I want to buy it again?!?!
1) Is there anyway that I could at least get back my previously purchased music and video WITHOUT having to repurchase it?
2) Is there anyway that I could recover the rest of my library? I did do the BACKUP
---> I already attempted the RIGHT CLICK on device through iTunes and restore on latest BACKUP----it did absolutely nothing to my old files.  This is sooo not worth the download....over 1,000 songs!!!!

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