Make sure you have the latest version of iTunes (10.6.1). If you don't, use this procedure to remove the current version and update to the latest: http://support.apple.com/kb/HT1925
Reboot your computer, and don't start any programs except iTunes. Disable AVG AND your firewall. Disconnect all USB devices except mouse and keyboard. Use a USB port directly on the computer, not a hub.
Delete any .ipsw files on your computer to force iTunes to download a clean copy.
Then try a DFU restore as follows:
Connect the cable to the computer, but not the phone.
Hold the HOME and SLEEP buttons for exactly 10 seconds until the screen goes black, then release the SLEEP button only and continue holding the HOME button. If an Apple logo appears you have held too long, so try again. You want the point where the screen clears, but before the Apple appears.
While holding the HOME button connect the cable to the phone and continue holding the HOME button until iTunes recognizes the phone, then release the HOME button.
Don't touch the computer or the phone until it either succeeds or you get an error message in iTunes. Ignore anything that appears on the iPhone screen.
If this doesn't resolve the problem try again with a different computer, or create another user ID on your computer and log it to it and try again.