I had this problem intermittently before the upgrade to iOS5 but it is significantly worse now and I'm having problems putting back all my music after the upgrade.
I updated to iOS5 Thursday night. The process did not go smoothly and iTunes is now trying to resync all of the music on my phone. However, it manages to copy across a number of them, stops, and then an error comes up saying "iTunes could not copy x to the iPhone y bacause a timeout occurred." iTunes then goes into a 'finishing sync' state that never ends. The only way to stop it is to unplug the phone. After that, iTunes stops responding.Looking at the graph on iTunes it suggests that the files are all there, but they are greyed out on my phone.
I am experiencing the exact same issues you described after installing the latest IOS5 update on my iphone 4s. However, I am also experiencing issues with adding new music to my ipod shuffle. Instead of getting a timeout error, iTunes just freezes.
Were you ever able to resolve your issue? Any help would be much appreciated.