I just got this error with Xcode 4.0.2 and an iPhone 3G running 4.2.1 (the final 4.x allowed on a 3G). I restarted Xcode and it went through the process of collecting debug information, then gave me a green light. Other answers here say that you may also need to quit iTunes for this to work.
Conclusion: Try restarting Xcode. Quit iTunes first if it was open.