Q: i have already restored my new handset but itunes is still asking if to set up as a new device or restore what do i do??

Select setup as "New", the next screen should prompt you to rename your phone. Just name it what you already have it named. After that, you should be able to sync/backup and all of your data & settings will still be exactly as you've already set them up on your phone. That message is more threatening than what really happens.