When you plug in your iPhone to receive the iOS 5 update, you may see a message claiming that the restore process cannot be completed.  The remedy is simple.  When you plug in the phone (before or after the upgrade) DO NOT follow the prompts for upgrading.  Instead, reject (Not Now) the upgrade and allow iTunes to sync your phone.  Allow it to backup, update apps, download new music, etc. jus the same way you normally would complete a sync.  After that happens.  Unplug the phone from the USB cable and plug it in again.  This time, follow the upgrade wizard.  Voila!

Cheers.