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Users on the Apple Discussions forums have found that the music was not erased, but simply needs to be re-synced. This method reportedly fixes the issue in question:
Apart from this bug, the 624.3MB update for iPod touch, iPhone, and iPad, is worth the hassle. It delivers new applications, performance improvements, and security fixes. Apple has added AirPlay, for streaming media from your portable device to a compatible TV or speakers, AirPrint, for printing content wirelessly (only works with select HP printers at the moment), and the Game Center, which lets you play social multiplayer games. On the iPad, the update also adds multitasking and folders.
The latest software update was released as iOS 4.2, but is technically iOS 4.2.1. Version 4.2 beta was released to developers earlier this month, but Wi-Fi connectivity issues forced Apple to build a second golden master before public release.
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