Why will my iPhone 4 not update past original iOS 4.3.5?

I've had my iPhone 4 since August 2011, opting for a new 24 month contract with UK's O2 network provider.
At the time of purchase, I downloaded the latest version of iTunes to my Windows 7 laptop and registered the phone. All was well and the phone worked fine but I was soon notified of a newer version of iOS.
The iOS install failed many times over the next two weeks so I gave up. There had been some stories in the media about a problem from Apple's end so I wasn't too concerned and plus didn't necessarily see the benefits of the update.
I tried again and again every month or so but continued to receive the same failure message (3194). To be honest I've coped without the need to update the iOS: I don't use my iPhone that much for PodCasts, Music etc. instead mainly using it as a phone (shoch horror), internet and e-mail. Since about January 2012 I've rarely connected the handset to my laptop/iTunes.
The lack of upgrade bugged me again this week and knowing I'm losing out on several key features of thel latest iOS I set about backing up the phone contents, resetting the handset to factory default and restoring prior to trying the update yet again.
Well!.... It still doesn't work.
The error message I get is:  The iPhone "XYX" could not be restored. An unknown error occurred (3194)
The handset is standardstraight from the shop... not jailbroken and no tampering of any kind.
PS: Since restoring my backup all my audiobooks have gone. Can't see them on my phone or on iTunes?!?!?!?!
Samsung Galaxy for me next time I think!

That seems like some pretty severe/technical hoops I have to jump through to get my handset working the way it should have done straight out of box!?!
A number of those remedies suggest my laptop is at fault (which Idon't think it can be because this occurs on both my laptop and my desktop, and at a variety of locations).
Do you think someone at the genius bar be able to solve this if I book myself in and will they touch my handset seeing that it's over 12 months old?

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