Not sure what changed with the recent iPhone and iTunes updates in this regard but if USB 1.1 was supported, it would be included with the iPhone specifications and system requirements. Regardless if this happened to work previously, USB 1.1 is not supported besides being much slower.
I understand there are some inexpensive USB 2.0 adaptors available you may want to check.
I don't know if this will help anyone else, but I was having a similar if not the same problem--my iPhone wasn't being recognized by iTunes. iPhoto would open just fine but not iTunes. I tried the hub solution, which didn't work for me. I was going to go online and order a PCMCIA USB 2.0, and in the meantime I had made some changes to a few contacts in my address book. When I plugged my iPhone in to see if it would sync the contacts at least, voila! EVERYTHING synced and iTunes opened up, no problem.
I have tested this solution three times, all successfully. So, for those of you with this problem of only having a 1.0 or 1.1 USB, just make one change to a contact in your address book and see if this solves your problem.
In this case it might help. Apple USB 1.1 hosts (the computer) require very strict compliance by the device (e.g. iPhone) to the specification. It could be that the USB 2.0 chip in the iPhone is not quite compatible. The errors associated with the poor compatibility could then cause software to behave differently. I know that the company that I work for had an IC rejected because it would not work with an iMac G3 USB 1.1 even though it worked with everything else.
Going through a USB 2.0 hub could fix the problem...if the hub doesn't have the same problems as the iPhone USB 2.0 chip.
Is the answer to this issue a USB 2.0 Hub? I get the same issue as others in this thread and I have an older PowerBook G4 (See hardware & software details below)
I get some of my information sync'd some of the time but never all of my information; especially larger files such as episodes of Lost or a movie. I either get the "device timed out" message or I get the "drive cannot be found" or something like that.
The odd thing is that I connect to other USB devices fine (external hard drives, other IPods etc) What is with the iPhone? I have tried all of my USB ports as well as disconnecting everything else from the computer (all firewire etc too) I have also disabled internet access (via turning off the airport), booted & rebooted and tried syncing but I keep getting the same issue.
Mac OS X
Model Name: PowerBook G4 17"
Model Identifier: PowerBook5,1
Processor Name: PowerPC G4 (3.3)
Processor Speed: 1 GHz
Number Of CPUs: 1
L2 Cache (per CPU): 256 KB
L3 Cache (per CPU): 1 MB
Memory: 2 GB
Bus Speed: 167 MHz
Boot ROM Version: 4.6.2f1
Serial Number: xxxxxxx
Host Controller Location: Built In USB
Host Controller Driver: AppleUSBOHCI
PCI Device ID: 0x003f
PCI Revision ID: 0x0000
PCI Vendor ID: 0x106b
Bus Number: 0x19
Last Modified: 11/12/07 7:21 AM
Get Info String: iTunes 7.5, © 2000-2007 Apple Inc. All Rights Reserved.