My final solution took all weekend to complete 😟 I have 10.7.2, latest iTunes etc etc. All using local backup, cable sync (not WIFI) too. Also, I have about 13,000 images from Aperture syncing back in. After the restore, after each and every step I checked the iPhone for the syncing logo to make sure it was really done.
For me my main oddity was that the Photo section was really goofing up on the space calculations. After the restore outlined below, iTunes claimed my photos would take 12GB of space. However, syncing 3 months of photos (supposedly 3GB) turned into 500MB of actual usage. Makes me wonder if my root cause of the issue was Photo syncing only, or a combination of factors.
Here is what I had to do:
In iTunes, Turn off Genius
Turn off Photo, Music, Podcasts, Audiobooks, Books, Movies, iTunes U
Apply to phone (failed for me anyways)
Resync again
Quit Aperture (or iPhoto if you're using it)
Delete iPod Photo Cache (right click photo library then "browse package contents" to find the folder)
Unplug iPhone from computer
Restart computer
Power off iPhone
Open iTunes
Plug phone back in
Cancel sync
Restore iPhone to factory
Restore from latest backup
Wait for sync to be TRULY complete
Turn Music syncing back on, apply (to sync)
WAIT for sync to complete
EXCEPT FOR PHOTOS AND Genius and iTunes U: Repeat checking off items (like movies) one at a time and syncing and waiting one at a time
In Photos, choose the sync button and choose your source (Aperture or iPhoto), then choose to sync only the last 3 months.
Sync, wait eons for it to complete
Switch 3 months to 6 months. Rinse and repeat process until entire library can be synced again.
I didn't bother turning Genius or iTunes U back on. I don't really use them anyways 🙂
This was a truly royal pain in the @#$ but my iPhone seems to be happy now.
Good luck, hope that helps someone!