I realise this thread is a couple of months old but I figured I might be able to help people out a little.

I had the same problem this last week. All of a sudden my external USB 2 HDD crashed. Win XP kept reporting a device malfunction and the drive was unrecognised. Device manager kept showing an 'unknown device' and any attempt to reinstall or update drivers would fail. I wasn't very happy as the drive is only six months old and contains all my website backups.

I discovered (by accident) that I was able to plug USB 1.1 devices into USB 1.1 and USB 2 ports without a problem. USB 2 devices, including my HDD, would run (albeit slowly) in USB 1.1 ports but would "malfunction" when connected to USB 2 ports.

Now I apologise to anyone who wants to learn some new computer skills but the solution turns out to be very "non-tech" - but I swear this worked for me as strange as it might sound.

Shutdown your PC. Now physically disconnect it from the mains power supply. This apparently clears any residual power on the motherboard. Leave it disconnected for a while (I recommend 30 minutes as that's how long I waited). Reconnect everything, boot up your PC and enjoy your fully functioning USB 2 ports and devices again!

Right now I'm able to use all of my USB 2 devices in the USB 2 ports without a problem. How long will this continue? No idea. But I know what to do if/when it happens again.

Notebook users with the same problem will need to remove the battery as well as mains power, but I understand this method will still work.