Okay, so for all of you here who think that all your stuff was wiped when you updated to iOS 5, you are wrong or you didn't make a good backup before you updated, or you got all trigger happy and uplugged your phones before the restore finished.
First you make a backup, cuz it's the smart thing to do. Takes 5-10 minutes (USB is only so fast after all) depending on the amount of stuff on your device. Next, choose to restore the phone to factory and update to the latest software. After this is done iTunes will tell you it's a blank phone and ask what you want to do. Just choose to restore your data and settings from the backup you just made. Takes about 5-10 minutes (basically as long as it did to back it up) for this to complete. Now, media in your iTunes library and apps are not backed up during the backup procedure, so after all of the settings and user data (ie app data, photos, emails and email settings, ring tone options, etc.) are back, it will procede to replace your media starting with audio files.
Now, after all that data is back, it will then begin reinstalling your apps. If you have not downloaded them to your computer, or otherwise have them available on the computer, it will download the latest version of the app available from the app store and install it instead. It will place the apps tiles in the same location they were at before the upgrade. Any data that was not temp or cached data used by the apps would have been restored during the first steps of the restoration. That's it, you're all done.
Now, the thing that might be messing with some of you is that after the initial settings and data restore, the phone finishes it's boot and lets you unlock it without the locked sync screen, which would normally give you the option to cancel the sync and unlock your phone. The new iOS lets you unloack and use the phone while it is syncing. So, even though it looks like it's done, it's actually putting all your media and apps back on it. With that being said, it would be a good idea to let it finish before unplugging it's USB cable.