NOO it's not broken it is a software error. What you need to do is put your phone into what is called DFU mode or Device Firmware Upgrade Mode. What you have to do is connect your phone to itunes but do not start the sync process. Ignore any popups from itunes initially. When you are connected to itunes take your phone and hold down the home button and power button at the same time. Hold them down for about 30 seconds or so and you should see your device screen rollover to the black screen and disconnect from itunes once this happens it will reboot and automatically connect to iTunes, after this happens start the restore process through itunes and it should continue past the error message.
* Also before you do this try ejecting your sim card if you have the at&t model if you are on Verizon ignore this. There is a small oval port on the right side of the phone with a small pinhole. Use a paperclip and insert it into the hole, the door will pop open. Take the door out, remove the sim card and wait 5 minutes then return the sim card back into the phone and begin the above process.
If none of this works you may just want to bring it the genius bar and have them look at it. Good Luck and I hope this helps!