The other night I thought I would sync my iPod Touch because I hadn't done it in a while. When I connected it, I was prompted to update the software (which I had been putting off) so I said ok. But something went wrong and I had to restore it to the factory defaults, then set it up again and reinstall all of my apps and music. Actually, I only put about a third of the music and half the apps back on because I wanted to get to bed at a reasonable time that night.
I didn't really lose anything (a few free apps that I can get again) but it was a rather alarming experience.