Because of widespread issues with activation caused by the launch of the iPhone 3G, activations of first-generation iPhones that have been updated to iPhone OS 2.0 are unable to complete, rendering the devices temporarily unusable.
As described by one reader:
"Got the 2.0 upgrade through iTunes 7.7. Chose download and update option. All went well until just after the dialog 'Your iPhone has been reset to factory settings and will restart. etc.' The phone appears in iTunes but cannot connect to the iTunes store to reactivate."
Other users are receiving the error message displayed below: