Iphone won't transfer purchases

When I connect my iPhone 3GS to iTunes, iTunes asks me to upgrade to 4.01. But it recommends I transfer my purchases first. However, when I tell it to transfer my purchases, it syncs for like half a second then nothing happens. I know that my stuff did not transfer b/c when I try to upgrade it stil tells me that the same specific purchases have not been transferred. What's wrong and what can I do to make it work?

Don't have a clue. Same thing happened with mine when I did the update yesterday. I do all of my syncing manually and usually a single tab at a time.

Did sync my apps which installed all the updates I'd done on the phone to my Mac - then went to the iPhone Purchases in the left column and dragged the couple of items I had there to my Mac.

The only other purchased items I had were a couple of books sitting in iBooks which are all already on my iPad. Did nothing with those.

I spent a half hour scratching my head and then just went ahead and did the update at that point. Can't promise it'll be the same for you, but I went looking around afterward and I can't find anything missing on it and the books are still in iBooks although they are not in Books inside iTunes.