Since I've gotten a number of views but no replies, I'll reply myself. In an effort to try anything to fix my problem I decided to uninstall ActiveSync 4.0 and install ActiveSync 4.1. During the 4.1 install I got the following screen:
I got the same screen during the 4.0 install except that instead of the USB being marked as 'Connected', it was shown as 'Available'. My laptop has USB version 1.1 only.
If I hit 'Cancel' (my only option really since 'Next' just continually loops back to this screen) at the above screen I can still get ActiveSync to open but it will not connect.
Again, any help or suggestions are much appreciated.