Here is what happened to me and the solution that helped me solve the problem:
When connecting my iPhone 4, I was made aware of an update of the iPhone software from 4.3.3 to 4.3.5. I did not want to download and update since I first wanted to make a sync (and with it a backup), not the least because I knew I had mobile purchases on my iPhone that had not yet been synced to my Mac. Unlike other times when the same thing had happened, I chose Download (without update) in order to start the download while syncing.
After the sync, I tried to hit the button that now read Update. Whenever I hit it, the message about "purchased items" would pop up. I tried to authorize my computer, while I knew it was already authorized. I did the "transfer purchases" thing (which did not seem to do anything, as all my purchases had been transferred by the sync). I synced my iPhone again and again... Nothing would help, the "purchased items" message kept popping up.
What helped in the end was unmounting my iPhone from iTunes, unplugging it physically (disconnecting the USB cable from the Mac), closing iTunes, and plugging the iPhone back in. I hoped for the sync to start automatically (as it usually does) but it did not this time. iTunes had opened again, though. So, I started the sync manually. Unlike my repeated syncs after the initial one above, the first sync step was again a Backup step this time. After the sync finished, I could happily update the software via the Update button. The message was gone.
So, here are the steps:
- Make sure the computer is authorized.
- Make sure to transfer purchases.
- Unmount your iDevice and disconnect it physically.
- Close iTunes.
- Reconnect your iDevice.
- Make another sync that does a Backup step.
- Then retry your Update: the "purchased items" message will be gone.
My explanation for all that strange behavior is that the check for "purchased items" is done against a last backup. As the backup of my initial sync did not yet include my purchases, iTunes would always complain about "purchased items". With repeated syncs during the same session not repeating the Backup step, only a forcible new backup solved the problem, now comprising all my new mobile purchases. If that theory is true, the following three steps should also heal the problem:
1. Make sure the computer is authorized.
2. Make sure to transfer purchases (right-click the iDevice in iTunes and choose Transfer purchases)
3. Make a backup (right-click the iDevice in iTunes and choose Backup from the context menu).
In my case, Step 3 alone would most probably have solved the issue...
Hope that helps, folks!