I had timeout errors while updating my iPod touch 4 and iPad 2. I just relaunched the update and it took on the third try for the touch, and on the second for the iPad 2. The update worked fine for my iPhone 4, though.
I didn't know what was causing the timeouts, or how to avoid them, so I just relaunched and went to sleep. Woke up, the problem was solved. It took hours for each update, so I didn't wait around.