Then, my colleague suggested the following:
Try putting it in DFU mode to at least see if you can restore it. See instructions below.
- Plug your device into your computer.
- Turn off the device.
- Hold the Power button for 3 seconds
- Hold the Home button without releasing the Power button for 10 seconds
- Release the Power Button but keep holding the Home button
- Keep holding the Home button until you are alerted by iTunes saying that it has detected a device in Recovery Mode
I did and it worked. So, I had my iPhone back but it was as if I just bought it, I had to get my data back as well...
I connected it to iTunes on my Windows 7 x64 and attempted to restore the last backup. I got prompted for the backup password. After entering the password, a process seemed to start but never finished. Instead I kept on getting the following message:
"itunes could not restore the iphone because the iphone was disconnected"
I thought it might have been a bad password, that was not it. Upon entering a different password, iTunes warned me that I had incorrect password.
Then, I wondered if my iTunes was corrupted, that was not it. I downloaded the latest version (10.7.0.21) and chose to fix my version to no avail.
At this point, I was worried that my backup was bad. Instead, it turned out that the fix was to connect the phone to a different usb port. As soon as I switched the usb port, restore started to progress and I got my settings back.
Restoring did not bring my applications back, but that's easy to fix by choosing the apps to install after launching 'App Store' > 'Updates' > 'Not on This iPhone'