Some reports of iTunes issues while upgrading to 3.0
A bit late to the party, I started the process of updating my iPhone at 3:00 PM Eastern. iTunes downloaded the update without a problem, but the install process was halted with the error message:
"The iPhone [your iPhone] cannot be updated at this time because the iPhone activation server is temporarily unavailable. Please try again later."
From there I've got two options: OK, which simply closes the dialog box, and More Information, which points a browser to a Knowledge Base article on iPhone activation issues. Mike also noted the appearance of an error -4 dialog earlier.
It looks to us like Apple's servers are getting slammed hard. A bit of patience ought to do the trick; you might also benefit from restarting both iTunes and your iPhone. Still, the whole thing makes me feel like Veruca Salt: "But I want an Oompa Loompa NOW!"