iOS 4.0 update problems

So I started the process of updating my iPhone 3G from 3.1.3 to 4.0. I started by manually backing up my iPhone by right clicking on it in iTunes. After it was finished I let 4.0 download (used the download only option). I then installed it and all was well until the process went to restore my data.

Itunes said the restore was interrupted and gave me three options, I picked "Continue restore". A few moments later a messaged popped up saying error -34 occurred and went on to say my iphone could not be synced because it couldn't find a file.

I have tried restoring it three separate times now and it just won't do it, same exact messages appear. Now itunes thinks this is a different iPhone so it wants to start a new if I go to sync it. Also the phone still has all my stuff on it like contact, texts, photos, notes, etc. The only things missing are things like my music (none on there now), custom ringtones,photos I've uploaded from itunes.

I'm not sure what my next move should be, the phone is at least usable for now.