I encourage you to read this entire post before trying this yourself...
I decided to stay with the first-gen iPhone, at least for the time being. I'm going to ride it out a bit for a change. I'm not too worried about selling my old iPhone for a good price, so I held onto it. Although, I have no intention of running two iPhones on my AT&T account and paying them twice, no thanks. That being said, I wanted to make sure I got the iPhone firmware update to 2.0 this morning, and after I updated iTunes to 7.7 in Software Update and clicked "Check For Update," iTunes did not know me from a hole in the ground about 2.0 what what. After a little hunting around, I realized several sites had already posted the steps to do it manually. I could not wait, so I forged on ahead! Thanks to WIRED's Gadget Lab and Gizmodo, I am updating to 2.0 as we speak, or trying to, and already have a couple App Store applications downloaded waiting to jump into service. Which ones? Super Monkey Ball and MLB of course.
Gadget Lab has a clear step by step, but they failed to mention the following note, which I got from Macrumors, and ended up being required of me, so I pass it along here:
Be sure to fully sync prior to proceeding. In order to install this firmware, you will have to do it manually by pressing the Option key (Shift under Windows) when pressing the "Check for Update" button in iTunes version 7.7. Then select the .ipsw file manually. If for some reason your download is a ".zip" file, rename it to ".ipsw" before proceeding.
I had to do that renaming step. I first (on impulse) unzipped the file, and that wasn't the thing to do. Removing the ".zip" from the file name is the way to turn the whole thing into a proper (and selectable via iTunes "option-Check For Update" ["Shift-Check For Update" on Windows])

The whole process took about 10-12 minutes to get installed and updated, but things held up quite a bit once the iPhone restarted itself and then iTunes be
gan "Accessing iTunes Store..." That process hung for another 10 minutes. So I ejected the iPhone and got the "Dude, plug me into iTunes now!" icons on the iPhone's UI. So of course, I obliged, and resumed waiting while it "Accesses the iTunes Store." I decide to just wait it out. Incedentally, this iPhone has/had never been jailbroken or unlocked in anyway shape or form beyond what good little Apple consumers were supposed to do, so the massive wait was not a result of anything like that. I read all over the place this morning that if your iPhone was unlicked, or jailbroken, that you would not want to perform this manual update at all. Also, iPod Touch users can't use this method, and will have to wait until the $9.95 update is available through iTunes itself.

After going through this process, and waiting for the iPhone to access iTunes Store, I waited and waited, and eventually it errored out. So now I'm screwed. No iPhone (temporarily?!) The only reason I started to do this "try it before the official release through iTunes itself is that I am leaving tomorrow for a few days out of town, and I wanted to have the new iPhone software to play with while I was relaxing in Maine. So it's my own fault. I have to say though, why all of these things can't just be cleanly simultaneously released is beyond me. With all the technological resources and big big brains involved, the fact that the iTunes update AND the 2.0 firmware update weren't ready to pop on my iTunes this morning, at the same time that people are buying their new iPhones, is troubling. Again, my own fault for jumping the gun, but I hope this post saves you from making the same mistake. I can only hope that things come online on the iTunes store for a proper upgrade so I can restore and get back to having a phone that works, and then also hopefully, update to 2.0
I'll post an update to this post when and if I get my phone back, and any other posts I find where people have run into the same thing I ran into. So far I can't find anything on line about it. I'm assuming I just have to wait. I'll connect the iPhone to iTunes once an hour and report back here. Some users are able to make it all the way through to "yay I have 2.0!" but that was not my experience. Stay Tuned.
UPDATE 11:20 AM EST
Now, rather than hanging in iTunes for 3 or 4 minutes and reporting the unknown error (-4), it goes immediately to an error of the (-9838) variety. No clue what caused the shift, maybe things are moving in the right direction.... maybe not. More soon.

UPDATE 11:25 AM EST
There are some other posts coming up now. CNET and PCWorld are reporting experiencing the same issue. Some are suggesting it could simply be a matter of the iTunes store being inundated with connections with all the new iPhone 3G users this morning - this is possible, of course, but we'll see how it all shakes out. I'd really like my phone back please.
UPDATE 3:32 PM EST
What a day. CNN has a big news story up and everything... bad moment for Cupertino. Hope this can all get turned around really quick like. My friend bought a new iPhone this morning, and still has been unable to activate it and get it running, due to this iTunes store connection error. I think we brought the servers down to a screeching halt. Maybe it's something else?

VICTORY UPDATE 4:18 PM EST
I IM'ed my friend who bought a new iPhone, and he said "I got through an hour ago," and I launched iTunes again and everything worked perfectly. All of my media had to be re-synced, but the backup data moved over quickly, and my prefs, home screen setup and links, etc. My new applications are syncing now, can't wait to check it out. It's really too bad Apple is gong to have a wave of terrible press because of iTunes. It's totally on their shoulders, and can't point at AT&T this time... it really is too bad. Deployment for this type of launch must be a logistical nightmare, and I'm glad it's not my job to figure it out, but that's what these folks are supposed to be good at right?
OMG, I'm watching Lee's bloop double - a mint video mind you - from the Chicago / San Francisco game that happened 2 minutes ago, nearly real time. This MLB app is sweet!! OK I got butterflies. It made my bad morning go away. I'm sooo glad Apple got this fixed before the end of business day of launch. You can't ask for much better than that on the evening of a day where phrases like "screwed the pooch" were being tossed around on blog comments all day long. Phew. Apple may have allowed a "bloop double" this morning, but at least they haven't lost the lead.
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