Also like many people however the update hasn't gone as smoothly as one might wish. Basically, in order to install the new OS onto the device, iTunes first has to perform a backup. For me, this was getting stuck at around 10% complete and seemingly not progressing beyond that for a very long time (around an hour).
Turns out plenty of other people are experiencing similar difficulties. I found this thread on the Apple forums which provides some comfort.
Basically, by checking the size of this folder: /Users/
Please let me know how you have got on with the iOS4 update.