Thanks for hunting down this solution.
I love the iPhone's simplicity and clarity. The same can sadly not be said for iTunes. As a software developer, I pay attention to user interfaces, and iTunes is really poor. The screens for apps is particularly baffling. iPhone 4s, iTunes 11.1.3.8 simply shows an empty box on the right and at the top the number of apps. And a "+" button that does nothing. Drag and drop does not do anything. And then there are the unhelpful messages (like the one that led to this post) that are particlarly unclear and un-apple-like.
Aaaarrrggghhhh!!!!