Since you've been able to update your address at the AppleID site, try this:
* Log out of iTunes on your iPhone and cycle the power on the phone.
* Sign into iTunes, then click on the little downward-pointing triangle next to your Apple ID in the upper-right corner of iTunes and choose "Account".
* Click "Edit Payment Information".
* Choose "None" as your payment option, make sure all your address and phone number information already listed is correct, fix anything that isn't correct, and click "Done". This will force iTunes to verify your account information as it exists in iTunes with what is registered for your Apple ID at
https://appleid.apple.com.
* You may be asked to verify the county for your billing address (for sales tax purchases); make sure this is correct, or transactions could be refused. Click "Done" when finished.
* Go back to the "Account" screen and choose "Edit Payment Information" again.
* Choose either the credit card logo of the card you want to use or choose "PayPal".
* If you choose PayPal, follow the directions on the web page that pops up in your browser to verify your PayPal account and link it with your Apple ID. Click "Return to iTunes Store" inside the web browser to return control to iTunes, then click "Done".
* If you choose to enter a credit card, make sure EVERYTHING is correct on the page--your credit card type, account number, CVV, billing address, etc.--and then click "Done".
That SHOULD allow you to purchase through iTunes on your iPhone. If you're still having problems after all of this, contact iTunes Support via e-mail. This is important -- the more help requests Apple gets about this issue, the more seriously they will have to take it and the more likely it will be that they address the problem with the seriousness it deserves. The link to file a trouble request via e-mail is:
http://www.apple.com/support/itunes/contact.html?form=account&topic=iTunes%20Sto re%20Account%20and%20Billing&subtopic=Managing%20your%20Account
Good luck!