That usually means that your antivirus and/or firewall is blocking access to Apple's servers, or your phone is jailbroken or hacked. It can also mean that you have a hardware problem. See: http://support.apple.com/kb/TS3694#error1
okay i may have called it wrong, we got the unlock from AT&T when our contract was up. We did this because we were thinking of switching to another carrier.
I checked the hosts file, and there is nothing refering to gs.apple.com. Should there be?
Is it possible to restore it back to 6.1?
No problem; it's just that many people buy what they think are "factory unlocked" phones, but the "factory" is the back room of the shop where they bought it.
gs.apple.com should not be in the hosts file (the only reason it might be there is if some hacking tool had been used on the computer in the past; not just jailbreaking tools, but tools to downgrade the OS and perform other unsupported functions).
You cannot restore back to 6.1; you need to resolve the problem with the latest version. Even if you could revert it would not solve the problem. You need to figure out why iTunes can't communicate with the activation servers. If you have another computer, try restoring on that, or take the phone to an Apple store and let a "genius" deal with it. Or, if your antivirus is Kaspersky, delete it completely, as it's impossible to turn it off completely, and it has taken a dislike to things Apple.