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I had the same "setup must be completed" message that never disappeared.
Configuration: Windows Media Player 11 final and ActiveSync 4.2
My conclusion: The synchronization via ActiveSync 4.X only works with automatic synchronization (play lists). Manual selection of the albums or songs does not work!
Create a play list in Windows Media Player. After that select the sync options of your device in the sync tab of the player. In the device settings activate the automatic synchronization and select only your new play list.
After that the synchronization with ActiveSync should work.
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