Were you able to get past this error yet? If not here is an article that may help you.
Installing and troubleshooting problems during the software update for Windows Phone
Step by step how to fix it:
1. Open the Services console window:
If you're running Windows 7 or Windows Vista: Click Start, type services.msc in the Start Search box, and then press Enter. If you are prompted for an administrator password or for confirmation, enter the password or click Continue.
If you're running Windows XP: Click Start, and then click Run. In the Open box, type services.msc, and then press Enter. If you are prompted for an administrator password or for confirmation, enter the password or click Continue.
2. Under Name, locate Background Intelligent Transfer Service, and then verify that the Status is set to Started.
3. If the Status is blank or the Startup type is set to Disabled, right-click Background Intelligent Transfer Service, and then click Properties. On the Startup type menu, select Automatic or Automatic (Delayed Start), click Apply, click Start, and then click OK.
4. If the Status was already Started, restart the service. To do this, right-click Background Intelligent Transfer Service, and then click Restart.
5. If you're running Windows 7 or Windows Vista: Click Start, type cmd in the Start Search box, and then press Enter. If you are prompted for an administrator password or for confirmation, enter the password or click Continue. Type bitsadmin /reset and press Enter.