Good news!! Fixed. Thanks to everyone for the many suggestions, and rascalmaster for the perserverence and moral support!!
It's been a roller coaster - the last 90 minutes that is.
iTunes stopped recognising iPod too. Eventually recognised both iPod and iPhone again without doing much more than plugging/unplugging into every USB port on the laptop, several times over.
Attempted the update through iTunes, and it failed. Put it into Recovery mode. Attempted restore, and it failed. Didn't do anything except think "hope Mrs D doesn't wake up now" and read the really wooly guidance on what to do if restore fails. Useless.
Attempted restore again, and it failed again, but different error code. I think it actually took six attempts, each time a different error code, and each time getting further through the process.
Eventually OS restore completed, backup restore completed, and music resync completed. A quick check suggests photos, contacts, text messages and apps are all there, but Mrs D will have to check.
Interesting having a snoop around. It looks like the restore might have corrupted the text message history though. Anyone know who Gary is? Apparently he looks forward to seeing Mrs D again as it was a night he'll never forget. Strange.
All feels very reminiscent of the last time I updated the OS - turned into a brick and much repetition eventually got it back up and running.
PS Only joking about "Gary"