Oh, who cares what Telstra say? They are bastards from the very beginning. If Mr Winn wants to stick to his knitting - not keeping up with the technology - he's more than welcome to do so, it doesn't bother me at all. I won't want an iPhone with a plan with them anyway.
hmmmm I haven't discovered any problem after my update (at least I don't think I have lost any songs) however, something funny happens when I listen to my friend's library via the network: the same song will repeat twice before it plays another one, I did make sure no repeat is on, and my friend indeed does not have two copies of every song. But what is funnier is that it does not always happen. (She upgraded to iTuntes 7 too, but it is a windows version)
Australian Telco's Lame Attempt to Bag iPhone
Upgrading To iTunes 7:0? You Might Want To Wait