When I got my iPhone 4 at launch, on the first day of setting it up, I noticed that it was asking me if I wanted to download a carrier update. I decided to leave it for the time being and the same thing has just happened again today. Come to think of it though, I don't think I've switched the phone off since I got it and that may be one reason why it has asked me since. Has anyone else had this?

If it helps any, I am on the O2 network.

It's just an updated set of details for your carrier (I think that particular one changes the MMS server that the iPhone uses - though the old one still works too). iOS4 allows carrier updates to be sent over the air (previously they were sent via iTunes). It will still work without the carrier update but there is no particular reason to reject it - you will only get nagged by it again in due course. You can trigger the iPhone to look for the carrier update file by going into Settings > General > About. The carrier settings version is shown under Carrier on that page (iOS4 ships with O2 7.0 if I recall, and the update that wants to install is 7.1).

Carrier settings are specific to the SIM you are currently using, so you only get this particular one (O2 7.1) sent to the phone if you have an O2 SIM in it (or a SIM the iPhone thinks is O2 anyway). 3UK SIMs will also trigger a carrier settings file, but that one actually does some useful things like setting up all the APNs properly for 3UK and enabling tethering. The carrier settings only affect the iPhone when that particular SIM is in the iPhone though - so if you switch SIMs you don't need to worry - the updates simply change the default behaviour of the iPhone for when a SIM from that particular network is detected.