sync doesnt put purchased items in iTunes library iPhone 3G

Im confused. Ive synced my phone 3 times. Im trying to update to the latest software version, but every time I click update it says there are purchased items on my phone that I need to transfer to the iTunes library. I thought the sync process did this. Whats going on?
When I looked at the purchased items, all I saw was the free Winnie the Pooh book, which I have on the iPad so I really dont even need it on the phone (or the iPad, really LOL) but Im afraid to say go ahead because it just doesnt make sense and Im afraid to lose something.
Im running iTunes 10.2.1.1.
any ideas?
thanks
edit:
I checked the sync settings and told it to sync all books. so, supposedly the winnie the pooh book would be synced, right? well apparently not because Im still getting that same error.
??
Message was edited by: iggyandspike
3GS, iPad 3G iOS 4 Toshiba laptop/ Windows 7