Just want to document this for Google to pick it up, just in case somebody else has a similar issue. The issue was that my iPhone stopped syncing. There was a variety of errors: timeouts, cannot read disk, hanging forever while syncing or just not recognizing the iPhone after connecting. I tried everything - restoring, reinstalling iTunes, swapping cables, but nothing helped. More mysterious, my iPod synced without problems.
The key to the solution was in the Mac OS X logs: the message
May 13 19:28:54 Jamaica usbmuxd[6182]: MuxInterfacev1Receive Dropping packet. Received 17408, expected 32764 bytes
May 13 19:28:54 Jamaica com.apple.usbmuxd[6182]: usbmuxd[6182]: MuxInterfacev1Receive Dropping packet. Received 17408, expected 32764 bytes
This somehow hinted an USB problem and after I disconnected a SanDisk ImageMate 12 in 1 Card reader the problem was solved.
This is by the way one of those situation where Apple's user friendliness gets into the way of solving an actual problem. None of the error messages displayed in iTunes hinted that there's an issue with USB. Good that's Mac OS X is UNIX and there's always a log to look at.

