Ejlif,
Before you reluctantly update.....at least unplug the Wadia, wait 30 secs, plug it back in and try docking your iPhone again. Start all over again from the unboxing.
As a matter of FACT: I bought a Cambridge iD100 dock over a year ago. I put an iPod Touch on it and it worked fine for a week or two then one day I get the same message as you did. I unplugged/replugged the Cambridge and it worked fine. It has now worked perfectly for over a year of non-stop use. I did not update or upgrade anything, just unplugged it.
Do you turn your phone off from time to time or do you just leave it in standby ? You should "reboot" it every once and awhile.
I agree that if it worked before it should work now. Things that go "bump in the night" are little spikes on the electrical line that you don't even know about but can create problems with the tiny microprocessors inside the Wadia... Could be you bent one of the 32 pins a little on the dock/phone connector a little when you re-docked it...have you put a new outer case on your phone?