Thanks Jordanund! Uninstalling the drivers worked (I only uninstalled the Apple USB drivers).
I upgraded from iTunes 9.1 to 9.2, and then I proceeded to update to 4.0 for my iPhone 3G. During the upgrade process, I got the 0xE8000065 error. It happened after the software upgrade, when the phone was restored to factory settings, before it could restore from the backup. I used Jordanund's suggestion to uninstall the USB drivers, and it worked! I did run into a little issue, however. When I attempted to uninstall the Apple driver, the uninstall window just hung for several minutes. At that point, I killed the application via the task manager. When I did that, I got a Windows BSoD. After the blue screen, I restarted in safe mode, which worked fine. I verified that the drivers were, indeed, uninstalled, and then I rebooted normally. After that I connected my iphone, and it recognized, and completed the update.