iTunes is trying to upgrade to iOS 4.3.5 instead of iOS 5
I had the same issue. Connected my iPad, started iTunes, and was offered iOS 4.3.5 (and this was just last week!). I had iTunes up to date and everything.

I canceled the upgrade, closed and reopened iTunes, and it then decided to offer to upgrade to 5.0.

I think it will resolve itself. Try restarting.