This is pretty much what happened:
http://hairydalek.posterous.com/my-ipho ... pdate-woesI have since learned that the -34 error and the files not found errors are indeed down to the 128kbps downsampling, and iTunes not knowing and running out of space.
While the iPhone has been fine since I recovered from the update problem, it’s been very sluggish - again, something that others have noted. An app like Twitter will take an age to start up, and when it’s time to Tweet something, the keyboard (when it eventually appears) is very sluggish and slow to respond. So I’ve downgraded and will be waiting to see if a future iOS4 update resolves these problems. I suspect not, as Apple are generally always more interested in the current kit.