I just finished updating my Apple iPhone 3G smartphone to the latest iOS 4 and things went smoothly; however there are a few things to bear in mind to reduce the number of potential issues.
(1) Make sure you have already installed iTunes 9.2 prior to updating your phone and that you have already restarted your machine as prompted by the media management application. Failure to do so could cause issues to the update process.
(2) Plug your iPhone via USB to your computer and if you are using a laptop make sure you have enough juice so that the computer doesn't freeze or shut down during the installation. iTunes should detect your Apple device. If not, then shut down everything and restart your computer and repeat the steps.
(3) Once your device has been identified, click on the appropriate icon and on the "check for an update" button, which will start the installation process. Note that if you use your device on several computers, you will need to perform the update on your MAIN computer, the one where syncs are carried out.
(4) The rest is only a matter of pressing a few more buttons to confirm the installation and the process should go on automatically. Do not interfere with your iPhone or iTunes during that time or the synchronisation process might be cancelled. Your device will be restarted several times.
(5) Please be patient, very patient. Apple says that the whole process could take as long as one hour to be completed. Depending on your location, there might be an update for your carrier settings as well without which you won't be able to access the internet.
Bear in mind that a second minor update is likely to follow up within weeks to solve any remaining kinks that users might have encountered.