IPad 2 Setup Problems

My IPad 2 was initially setup and actived by Apple in store and has never been connected to my computer. Yesterday I decided to back it up and update to the latest OS software. When I connected it to my computer ITunes recognosed it and asked me to register it which I did. It then wanted to setup the IPad and gave me the option of restoring from one of my IPhone backups (***) or setting up the IPad as a new IPad. I've spoken to Apple about setting it up as a new IPad and they tell me that I'll lose all of my apps and data if I do. They also tell me that this should be happening and I should be able to cancel the process and back up my IPad. The problem is that there is no cancel option and clicking on the IPad option on the left only has the option to eject it. So I'm now stuck with an IPad that I can't update without losing all of my apps and data.

Any help would be much appreciated.

Mike