We just got a load of tips from readers that the iPhone 3.0 update is sending their iPhone 3Gs into an unrecoverable mode where the activation process won't complete.
The message above is the one iTunes spits out if you're one of the unlucky ones—like our own Andi—that can't complete the upgrade. The phone itself is locked and can only make emergency calls, which is what happens when you can't authenticate your phone with iTunes.
It seems like it's just the activation server is acting up, which means you should just hold on until it comes back online. [Thanks tipsters! (You poor bastards.)]