IPhone :: Can't Find A Way To Preserve App Data While Upgrade From IOS 3 To 4

During the weekend I am helping one family member to upgrade the iOS on her iPhone 3G from 3.1 to the latest available, 4.2.1?Before the upgrade, iTunes warns me "Upgrading to iOS 4.2 will delete all of the apps and media......" and suggest me that I should apply this update on teh compuetr where I syn apps, music, videos, and photos from. The problem is, this user has never sync it with a computer. She had been using this phone for over 2 years, she has 5 pages worth of apps, and of course she would have data in some apps. She has no problem letting me make my computer as THE computer that her iPhone syncs to, and I even created a new iTunes profile for her, authorized her Apple ID, and transferred her purchase into iTunes. But when I check "Syn App" on, it tells me that all apps and data on the iPhone will be replaced with the data in the iTunes library. Well, I know what this is about, this is like.. one way overwrite type of sychronization.

But when I looked over everything again, it seems like in the iOS3 era, if you don't sync your apps with a computer on day 1 before you start using the phone, you permanately lose the ability to backup the apps' data and restore to another device? I like to emphasize again that my focus is in data, not apps, I know I could transfer purchases from phone A to iTunes to phone B, it's the inability of backing up data. Do I miss anything here? Is there still a way I could upgrade this phone from iOS 3 to iOS4, without losing her app data?

Info:
Windows, NA