How to Upgrade your iPhone to iOS 4

Step 1. Download iTunes 9.2

Step 2. Connect your iDevice to iTunes, but hit Cancel if it asks to update your firmware. Right-click the device icon in the source list on the left and choose Backup from a drop-down menu. This will copy user and application data from the device to your computer.

Should anything go wrong, or if you simply need to transfer your settings to another device, you can choose Restore from the drop-down menu and iTunes will load default software on your device and populate it with your settings from the backup file.

Step 3. Select your iDevice under Devices in the leftmost source list and hit the Check for Update button in the iPhone Summary pane. Presuming Apple’s activation servers don’t melt, iTunes will download the iOS 4 version for your hardware and install it.

Should the updating process go wrong and leave your device inoperable or iTunes no longer recognizes it, don’t panic – just put the device in the recovery mode, denoted by the “connect to iTunes” graphic on your device’s display, and iTunes should be able to recognize it.

{source: geek.com, apple.com}