add one more to the list. more reports hopefully more attention. this happens to me, I'll assume it has to do with wi-fi syncing, since it happens when my iPhone 4 is showing up in iTunes over wireless. I tend to leave iTunes open because of the automatic downloads, I never know when I'm gonna plug it in and stuff, or when I'll want to access my library through Home Sharing.
As such, this message pops up by all I can tell just at random times. It's VERY annoying though. I'll try and restore iTunes from minimized state and it's seemingly frozen, though I know by this point it's because that error message is showing as a modal dialog box and I have to hit OK.
I'm running iOS 5.0.1, but it also occurred in the initial release, 5.0. I have the latest version of iTunes (64-bit) 10.5.1.42. Just as I switched over to get that version, there it was, sitting for me. The iPhone still shows as connected fine, and is not trying to sync. Majority of the time it happens, it's not plugged in to a charger, it's just on my desk or something. It really shouldn't be a range or signal issue considering I'm sitting only feet from my router, and it's an N router. No other problems with it elsewhere. Running Windows 7 Ultimate 64-bit.
Would love to see this fixed, since if I leave it open, I can switch over to iTunes and there'll be 3, 4, 5 maybe instances of the error I have to click out of.
The only odd behavior I have found is that artwork or other metadata does not seem to sync over until I physically plug it into the USB port and do a manual sync. Same with deleting files... I'll delete files from the device or in iTunes (when it's wireless) and it won't remove them (or rather, it removes the entries only from the device the delete was done on, but I believe it only removes the pointer or entry to the file, and doesn't actually remove the file until a tethered sync. Adding files works, though. I can drag files onto the iPhone and they'll copy over fine... just removing or making changes to metadata seem to not work wirelessly.
That's about the best/most info I can give, as there's really no clear trigger that it happens, and I can always hit OK and access the iPhone's contents from the list with no problems at all. Maybe it has something to do with like... the wireless cutting off after so much time being locked? It seems I read somewhere that after it's locked the wireless will cut off after 10 minutes or so to preserve battery? (I could be wrong, it just seems familiar somehow). iTunes then thinks it has lost the iPhone out of range or something and throws up an error? Thing is though, at any time this happens, I'm not trying to sync, I'm not trying to access the phone... I just happen to have iTunes open and the phone around within range to be picked up. No clear definition to what that error code even means specifically but I'm sure the developers surely must know.