So I installed iPhone update 1.0.1 on Heather’s phone. Worked like a charm. And as a bonus, the iPhone now will play music over her Griffin iTrip, so she can listen to music from her iPhone in the car.
My iPhone had been modded by adding some custom ringtones.
Prior to the update I removed the custom ringtones (using the same application that I had used to add them: iFuntastic).
I also imported all my photos as I had heard I might lose them otherwise.
iTunes indicated it was preparing the iPhone for the Software update and then it reported back an error. (I assume that it detected some difference on my iPhone due to the modding). It then put the iPhone in the “restore” state and prompted me to do a complete restore.
So here goes…
Wonder if I am going to lose my notes.
Interesting. It’s downloading the iPhone software update even though I had already downloaded it.
I’m happy I didn’t try to do this update when I was on the road last week since I had pretty unreliable internet connectivity.
Now iTunes is “Waiting for iPhone…”. The iPhone is showing the apple boot logo and the spinning gear.
Preparing iPhone for restore, “Restoring iPhone software…”, “Verifying iPhone software…”, “Verifying iPhone restore…”, “Restoring iPhone firmware…”
“Your iPhone has been restored to factory settings and is restarting”…
Ok, now my iPhone went back to the screen saying it need to be activated.
iTunes went to a screen prompting me to setup as a new iPhone or restore from the backup of my iPhone.
Also, my iPhone now says that it has been activated.
I’m choosing to restore.
“The settings for the iPhone have been restored”…
Ok, now it is having to resynchronize everything I had on it. (Contacts, music, movies, photos, calendar) This is going to take a while.
…
…
Ok, it’s finally done syncing.
Seems to have restored nearly everything.
It restored my notes. It of course restored all of the items that I syncronize with the Mac (contacts including favorites, calendar, music, etc.)
It did not restore my wi-fi passwords. (That’s ok)
It did not restore the state of deleted email. (i.e. it redownloaded some email from my mail servers that I had already deleted on the phone).
So far I’d say that it worked fairly well.
I guess I should probably reinstall my custom ringtones now. 
Probably also should learn more about what changes the modding actually makes so that I know what I need to revert so that future updates will think that I haven’t modded the phone.