I had the same problem (with a 3GS). After the restore that occurred with the system upgrade, I ended up with something like 9GB as "Other", which was pushing me over capacity.
Here's what worked for me:
1. I went to Music and unchecked a playlist that was about 10GB of music. This meant that I was no longer over capacity (at least according to the status bar).
2. I also chose to override the phone's Contacts with the Contacts on my desktop. (This is probably unrelated – I did it only because I'd had some conflicts show up during the upgrade – but I'm mentioning it in case it had an effect on the end result.)
3. Then I clicked Apply and the phone synced.
4. Result: 1.04GB of "Other", which is about what I'm used to.
5. I went back into Music, checked the 10GB playlist and 1259 tracks were returned to my phone on the next sync.