from what I can tell this is due to the "backing up" feature. Apparently the more apps you have installed on your phone the worse it is. I imagine this will be fixed in a firmware update.
It is very annoying however.
I've upgraded my 1G iPhone to v2.0 and iTunes 7.7. Now my Syncing seems to take forever. Lots of pauses as if I have to wake the computer. Has anyone else experienced this.