When I restored as a new phone, everything is still on iTunes. However, it was not on my phone, since it's now "new." When I plugged in my "new" phone, I set it up with all the preferences I like for syncing, podcasts, videos, photos, etc., etc. on iTunes, using the tabs at the top of iTunes when the phone is listed in the devices on the left.
Then, I selected the Apps I want to have on the phone again, and made folders, and selected "apply" so iTunes will remember what I did with the apps. My contacts (phone numbers) were still there, on my phone, because I told iTunes to sync my contacts. Before putting anything else on my phone, I put my custom ringtones back on the phone. Then, I put all the books, music and videos that I wanted. After that, I went to settings to customize the phone more to my liking.
I am very happy. iOS 4.0.2 is working GREAT on my iPhone 3G now, after 6 weeks of misery. It was so worth the time to set it up again as a new phone!
Before restoring as a new phone, I also sent a report to Apple that they told me the engineers would look at. I HOPE that Apple will fix this problem, but until they do, I am loving my iPhone 3G again!