READ!
Many people including me have encountered this problem recently on the new 5.1.1 software. I have done research and I have finally come up with the solution.
iTunes Could Not Connect To This iPhone Because An Unknown Error Occured 0xe800012
WARNING: DO NOT RESET IF YOU HAVE VALUABLE PICTURES OR ANYTHING SAVED. IT WILL DELETE EVERYTHING. Plug into the computer and drag the photos into another folder. Try these solutions before trying mine.
http://support.apple.com/kb/TS3221
Thank you all for watching and have a great day!