2. OTA vs iTunes installation.
My preferred method is to do Updates using iTunes on my Computer.
You will Prompted to Transfer any Content from the Device.
See the Using iTunes Section Here...
Make sure you have the Current Version of iTunes Installed on your computer
- iTunes free download from www.itunes.com/download
Always Backup before you update
How to BackUp > http://support.apple.com/kb/ht1766
What gets Backed Up