I've tried this three times now. I get the update notification, go through an hour of waiting while the phone backs up and at 67% the phone restarts and enters download mode while the zune software displays a generic error code (c101007b). I can't update the phone! Any ideas? I've already tried the support tool.
I erased all the data on the phone. I have an SD card and it's working fine.
In Zune, go to phone and erase all the data. The data is still on your computer (confirm it sync'd first). Then the backup is small and I was able to upgrade twice. First to the security update and now to 7.5.