I had this problem back when 2.1 came out, and I actualy upgraded mine legit.
If i remember right theres a format option you can choose at the recovery screen? Just use that, it will format your phone and you will lose all the apps you downloaded.. You should be able to resync your phone to facebook/gmail and get your contacts back however. At least thats what i did.
I think what happens is during the upgrade some files get corrupted. but what do i know ;p