Same problem here. In fact, I had the same issue when earlier updating to the 4.3.5 release. This iOS5 update required an update to iTunes, and now my formerly working backup process no longer works. There is an Apple support topic on how to uninstall all Apple and itunes-related s/w and reinstall, but this has not solved the problem this time.
My iTunes is completely frozen/unresponsive at the moment. (Locked up at "Syncing Jim's iPad" Step 1 of 5").
When I had tried to access Help/iTunes help I received a "Your computer is not connected to the internet" message, which is a bit suspect since here I am typing like crazy on an Apple website, presumably on the internet.
I've tried unloading my antivirus, disabling Windows Firewall, uninstalling/reinstalling iTunes with latest release, and all it can do is freeze up during the Sync/Backup.
Yucch. Doing the iPad restore waltz, btw, is not a very friendly option since it takes FOREVER to reinstall all the missing apps. Criminy.