I sync'ed twice for my iPhone 4S and my iMac, but it still asked me to transfer purchased content to my Library? iOS 5.0.1 is out and I want to do any upgrade, but when I click Update, it will pop out a window that says:



So I sync'ed the iPhone 4S once, and it pop out the same dialog.  I sync'ed again and it was the same thing.  Is it not good enough to just sync?  What should be done to "transfer the purchased items to my Library"?
Follow the steps in this Apple support page. This page goes through the steps to ensure that iTunes on the target computer is authorized, and the steps to transfer are:


Connect your device to the computer. 
Select the Transfer Purchases menu option



You should then be able to upgrade your iPhone without any additional prompts.