HT4972: iOS 4: Updating your device to iOS 5 or laterLearn about iOS 4: Updating your device to iOS 5 or later
Currently Being ModeratedHT4972 Re: What do you have to do, when it says it cannot be updated because firmware isn't compatible?Jun 25, 2012 9:03 AM (in response to Smithjameslee)
It might be the case that you are trying to restore your iPhone with an incompatible firmware, maybe for eg. of iPhone 3GS, or 4S?
My suggestion would be that update your iTunes to latest version, after installing, open it, and after a sync is complete, right click on your iPhone (in devices list in left side bar of iTunes) and click on backup.
After a backup is done, hit the restore button, it will ask you for restore and update, click on that, it will download the latest iOS firmware, which might take a while to download, after it's downloaded, your phone will be restored to the latest iOS (5.1.1 for now) and then after restoring, you can restore the backup you jus did few moments ago, sync the data back to the phone, will feel the performance like brand new. Use the restore, not the update, would be helpful!
This should solve your question!