I think I got it to work.
My work PC is XP based.
The below directory is where it installs the update:
C:\Documents and Settings\LOGIN\Application Data\Apple Computer\iTunes\iPhone Software Updates
The file name is called: iPhone3,1_5.0_9A334_Restore.ipsw
After the download, I exited iTunes and deleted the file.
When I started iTunes, it prompted me to download the file again. It put the same file in the same spot with the same size (792,919KB).
I clicked the update button and it said: "Are you sure ... I will delete everything ... bla bla bla"
I stopped it and existed iTunes.
Deleted the file again.
Started iTunes ... again ... iTunes said do you want to download. I said no.
Exited iTunes.
Copied the file back.
Started iTunes.
This time iTunes said ... "Do you want to upgrade?" ... versus asking me to download.
As the prior poster ... this will hopefully save me "5 hours" when I get home.
Edit:
My home PC is Windows 7 ... hopefully I can find the same directory structure ... wish me luck.
Edit 2:
For Windows 7 I have found references to the below location:
Users\<User>\AppData\Roaming\Apple Computer\iTunes\iPhone Software Updates
I have also found the below web site where you can apparently download the update also. Have not tried it though.
http://www.felixbruns.de/iPod/firmware/