I found a solution!
It worked for me and many others (who posted their gratitude on the original post).
Below are the instructions you have to follow. If you have disconnected your phone or shut your iTunes, don't worry. I did it. I even reinstalled iTunes a few times and shut down the computer as well.
Here it goes:
"The way to get over the 16xx errors while restoring on any firmware is this:
Once you get the error DONT DISCONNECT IPHONE OR CLOSE ITUNES. Which leaves us with only one option, rESTART Iphone. STEP BY STEP GUIDE FOR VERSION 2.0.1:
1). You get the error. (Ofcourse)
2). DONT TURN OFF ITUNES. DONT DISCONNECT IPHONE CABLE.
3). If the phone is still on, reboot/restart the phone. If its off then kick it out of DFU mode which is explained in the NEXT step.
4). Press and hold the power and home button for some time to kick the phone out of DFU mode.
5). Itunes will detect it again.
6). Now try to simple-restore it, that is click on the restore button on itunes while pressing the shift button of your keyboard. YOU WILL GET THE 16XX ERROR AGAIN IN 5 MINS !!!! but dont worry, everything is under control.
7). now your iPhone will have the picture of the iPhone cable on its screen. good.
(DONT TURN OFF ITUNES. DONT DISCONNECT IPHONE CABLE.)
8). NOW put the iPhone it in DFU mode. How? Firstly turn the phone off (it might try to start up on its own again but turn it off again). Once its off, Press and hold the power and home button for 10 seconds, then release the power button but keep the home button pressed for another 10-20 seconds till itunes recognizes your phone.
9). NOW restore the phone by selecting the pawned custom firmware that you created and you will NOT get the 16xx error.
I got this solution from here:
Hope it works for all of you.
Phil from Brazil