The update servers of Apple are overloaded and cause failed upgrade attempts.
You are excited to finally get iOS 5 on your iPad or iPhone and the download of the update files via iTunes worked smooth. You are just moments away from playing with the 200 new features. But then the Error message: "Your iPad or iPhone could not be restored. An internal Error occured." pulls you back into the real world of overloaded servers. What looks like an error with your iPad, iPhone or Mac is a connection issue with a server at Apple.
Mac forums light up with comments of failed upgrade attempts. On MacRumors is a post that shows what happens. Server gs.apple.com is responsible for the internal error message. The only thing you can do is wait and try again. There is nothing wrong with your hardware and software in most cases.
This situation could well last into the night.
I was just able to overcome this error. I think I have tried about 10 times to run the upgrade. Good luck.
More iOS 5 News.