Guys i managed to make it work again.
First of all i found this which was more or less helpful:
http://iphone-chat.org/itunes-wont-recognize-iphone-1019/
Then let me tell you the story of the headaches for today. This morning, after i uninstalled itunes, i posted the above posts with the pics attached regarding my situation with iphone in device manager. As you can see windows had shown me some error (the yellow triangle next to the USB device) saying it cannot started since some drivers were missing or corrupted. That was the situation after the upgrade to iTunes8 and firmware 2.1.
After seeing and posting that i though why not fiddle around with the drivers since i didn't have anything to loose. I then uninstalled the driver, check boxing the option to delete the driver files too. Then i unplugged the iPhone and plugged it in again. Windows started to search for drivers and was able to see it as a digital camera, allowing at least to access it (for pics) and to charge it. Installing itunes again proved to not change anything since the phone was not recognized by iTunes.
Then i proceded to uninstall iTunes (again) and the "digital camera" from device manager. Unfortunately there was no option to delete the driver files along with the uninstall. Later on after google-ing alot i found that in fact windows pulled the file usbaapl.sys from it's repositories EVEN THOUGH i manually deleted it from \windows\drivers and \windows\inf just to make sure it's a clean uninstall. Unfortunately this was somewhat of a bottleneck since every time i plugged in my iPhone it only charged it, not even allowing me to see the pictures (meaning there was no digital device to access from my computer. That didn't resolve regardless of what i did.
BUT in the end somehow i got another copy of the file from the rapidshare link, and then made a FRESH install of itunes8. After wards somehow the files got right and windows saw the Iphone for what it was.
Hope this helped ! I will further check this thread to offer further explanations as good as i can to anyone in need. Shame that i had to go through so much trouble to fix what supposedly had to work perfect right from the start.