I ran into this issue today after trying to fix my battery life issue by doing a system restore... I ended up just wiping the device and reinstalling everything as if it was a new device. My 3GS seems to have a severe limit on how many applications I can sync now. I know I probably have way too many anyway, but I can barely put 4 pages of Apps on it before it simply stops accepting new apps. All the apps I am trying to put back on it were on it before I did the restore, so I know they are compatible with the new version. I tried restarting iTunes, deauthorizing/reauthorizing, and restarting my computer (Windows 7 running in BootCamp on a MacBook). I never set any restrictions, so the solution that seems to have worked for others will not work for me.
Halp >.>