Using 1st generation iPhone as iTouch

My father gave me his 1st generation iPhone to use as an iTouch for my daughter.  It still had the deactivated SIM card in it.  I plugged it in to my iTunes and it immediately wanted to update the software.  I believe it updated to 3.1.2.  But something must have happened during that processed because now it won't get past the emergency call screen.  When I plug it into iTunes it says it needs to be restored.  So I do the restore.  Then when it's done it goes to sync and can't complete that. One of the errors I get is that it can't recognize the apps on the phone.  I am forever stuck at the emergency call screen.  Is this phone too old to use?  Any help would be appreciated.

Taking the SIM out makes no difference.  I get to the screen where everthing looks normal.  When it hit the Sync button it looks like it will sink and then stops and I get this message:  "iTunes cannot sync to iPhone because the apps installed on the iPhone could not be determined".  Then I get kicked out.
I have already click on that link.  I have Googled and researched and tried everything!

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