I have just had the same problem!! It took me alday to figure it out but I've got the answer.
Go into your control panel and into uninstall a program. uninstall everything that says apple, itunes, quick time, bonjour, apple software update, apple mobile device support, apple application support.
Once you have done that restart your computer.
Next go to
http://www.oldversion.com/downloadiTunes8.0.0.35.html and download itunes 8.
Once that has been downloaded it will offer for you to update you itunes, decline this for the time being. Go into your documents folder into your music folder. in there you will find all your music files, drag and drop them into your itunes. Plug your iphone/ipod in and tranfer all your purchases into itunes. Once all this is done you will be able to connect to store. Then all you have to do is update your itunes and its done. It shoul work perfectly 🙂
Good luck!