I had the same problem when I upgraded the OS to 2.1. I forgot I had changed and enabled the PIN on the SIM. When iTunes tried to upgrade the OS, it failed because of the PIN lock. On your phone, go to Settings >Phone>SIM PIN> and turn it off. Hopefully you know your existing PIN, otherwise you will not be able to turn it off.
If you SIM is not PIN locked, then I do not know why you are getting that error.
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