Here’s the apparent fix for this error, though I’m not sure if you need exactly iTunes 7.4 and firmware 1.1. or if you can do this with all versions of firmware and iTunes.
This is a fix if you get a Unknown Error (1604) screen.
* Turn off the iphone and pull the chord from the computer
* Uninstall iTunes 7.4
* Re-Install iTunes
* Restart your computer if prompted
* Pull the SIM card out of the top of the iphone (Instructional Video)
* Get the Yellow Triangle of Death or The Cable to iTunes screen[Hold the home and power buttons for max 30 seconds]
* Plug in your phone and open iTunes
* Hit Restore(It should be working by now…)
* Re-insert your SIM card into your iPhone.
* Re-activate your iPhone.
* Restore your data from your latest update
Get your iTunes 7.4 from FileHippo.