Check for Windows Updates When Having USB Device Problems
There are many reasons for USB device problems. One of the first things you should do is check for Windows Updates. Run Windows update while your USB device is connected and powered on. (That way, Windows includes any hardware updates specific to detected devices)

If you are running XP

• Run the update as Custom (not Express) so you can see if any optional hardware updates are found
• At minimum, you should be running XP SP2. But note: several USB hot fixes have been released since SP2 (see below)
• I'd advise you run on XP SP3 (which includes many of the USB hotfixes) but even then you should double check for hotfixes (see below)
  However, BEFORE you do an upgrade to SP3
  • If you currently have Internet Explorer 8 (IE8) installed, uninstall it before you upgrade to SP3. Then install SP3. After SP3 you can reinstall IE8. This allows you the option to uninstall IE8 after the SP3 upgrade
  • If you have IE8 installed at the time you upgrade, you will no longer have the IE8 uninstall option! (Unless you can first uninstall SP3 successfully)
  • Also, before an SP3 upgrade, I'd advise you first
    • Click Start->Run, enter chkdsk /r to verify the hard drive's file system integrity. And be patient. chkdsk can take a loooong time to run. (Especially if it's a big hard drive). If you get worried because it doesn't look like the screen is changing, wait for a screen change (like %complete) to take at least 30 minutes before thinking the screen might be hanging
    • Run your virus scanner to assure your hard drive is malware free
    • See Steps to take before installing XP SP3

If you're running Vista, it's best if you are running Vista SP2 (i.e. the latest service pack releases)

Windows Hotfix and other release info
This is not a complete list of USB / related hotfixes but here's a number of hotfixes you can review and assure you have installed in your system and/or see if it sounds like your problem

XP

• KB925196, 04/23/2009
  A computer that is running Windows XP cannot detect a USB flash drive, an Apple iPod, or an external hard disk drive
• KB968132, 03/11/2009
  USB devices may stop functioning correctly when multiple devices connected to the same USB hub go into selective suspend
• KB817900, 2/16/2009
  USB port may stop working after you remove or insert a USB device
• KB823732, 01/30/2009
  How can I prevent users from connecting to a USB storage device? (P.S.This might be a reason why you can't connect either)
• KB895962, 01/07/2009
  A USB 2.0 hub may stop working when you disconnect a USB 2.0 printer from your Windows XP-based computer
• KB314634, 1/02/2009
  Why doesn't my computer detect my new USB device when I'm running Windows XP or Windows Server 2003?
• KB918005, 12/09/2008
  Power consumption may be more than you expect on a computer that is running Windows XP or Windows Server 2003
• KB871233, 11/03/2008
  USB device is not recognized when you attach it immediately after your Windows XP-based computer resumes from standby or hibernation
• KB943198, 02/26/2008
  When you use a USB-to-Serial converter to connect a device to a Windows XP-based computer, the data transfer from the computer to the device is slower than expected
• KB893711, 11/16/2007
  A USB mouse that is connected to a USB 2.0 hub is not detected by Windows XP
• KB88740, 11/16/2007
  You receive a "Rundll32.exe has encountered a problem" error message, or the wrong USB device is removed when you try to remove a USB device on a Windows XP-based computer
• KB920875, 09/29/2007
  USB devices that are disconnected and then reconnected to a USB hub may not be detected on a Windows XP-based computer
• KB940514, 09/04/2007
  USB devices do not work after you disconnect and then reconnect a USB hub from a computer that is running Windows XP
• KB312370, 05/07/2007
  Universal Serial Bus 2.0 support in Windows XP

Vista

• KB928631, 10/28/2008
  A USB device may no longer work correctly after Windows Vista resumes from sleep or from hibernation
• KB955840, 8/01//2008
  You cannot automatically recover from an overcurrent condition that occurs on a USB device on a computer that is running Windows Vista SP1 or Windows Server 2008
• KB941600, 5/19/2008
  Cumulative update rollup for USB core components in Windows Vista
• KB943599, 5/15/2008
  The audio from a USB speaker is distorted after you connect an additional USB device to a Windows Vista-based computer
• 945577, 12/14/2007
  Error message when a portable Windows Vista-based computer with a USB camera device resumes from long-term suspend mode: "0x000000E4" or "0x0000000A"
• KB930312, 1/23/2007
  The "Allow the computer to turn off this device to save power" power management option for a USB Root Hub does not remain selected after you restart Windows Vista

Great post

Excellent LookinAround. This needs to be a permanent fixture.

Thanks for the positive feedback

i'm in the process of updating my USB Troubleshooting sticky and posted this with the plan to reference it as one first of the troubleshooting steps!