Installing the new (finally!!) iOS 4.2 beta on my iPad didn’t pose any problems. As usual, I just restored it using iTunes. Then I tried the same on my iPhone 4 but there always occurred an installation error right at the end of the update process. If this happens to you as well, here’s the solution: you need to download the latest Xcode environment for iOS 4.2 beta.
Open Xcode and you should see your iPhone show up in Xcode’s Organizer window. Click “Use for development” and use the restore button in Organizer to upgrade the phone to iOS 4.2 beta (which you already downloaded, right?). After it’s finished (takes way longer to restore than in iTunes IMHO), close Organizer, disconnect the phone, reconnect it and finish the process in iTunes. Obviously, you need an Apple developer account and all your i-Devices you want to update need to be registered with their UDID in the provisioning portal.
If you don’t have a developer account and ended up with a bricked iPhone that’s stuck in the connect-to-itunes screen: do not fear. You can always restore it to the latest official version of iOS which at the time is 4.1. Just restore the phone in iTunes.