The help support page apple got on this problem is not helping me out. My iPhone is in "Connect to iTunes" mode (aka DFU mode) and when I restore it, it gets passed all the steps then it says "This iPhone can not be restored for an unknown reason".
I am going to try to restore on my other PC so I am hopping that works.
I also just restored my PC to factory settings also. (It had problems to, but the PC and iPhone problems are completely unrelated)
iPhone 4, iOS 4, Trying to restore. iTunes 9.2.1 (latest)