I'm sure this is probably old news, but I just updated iTunes. When it was complete, I tried to sync. I was prompted to download and install an iPhone software update. Its installing on the phone right now, not sure what bugs it fixes.
Do you have any hacks on your iPhone? I did the update without issue. If anything, things are better. I would be willing to bet that people that ran into problems disconnected before it was finished updating, because the process appears to hang for about 2-3 minutes, but does continue. If your iPhone has no hacks, I would go ahead and update. Just let iTunes sync your device first, then click the "Check for Update" button.
Update went smooth here as well. I lost nothing in the update and nothing lost functionality when the update occurred. I am not sure what people are seeing with the apparent loss of e-mail functionality, but like I said I had no issues at all.
My iPhone was modded out pretty heavily. Lost all the custom icons, ringtones, etc. Had to do a full system restore and lost a lot of contacts, texts, voicemail, and all of my photos in the process. Other than that, phone's working just fine. Reinstalled all my mods post update without any hangups. I'll back up the phone more regularly now and certainly before I perform another update.