Same configuration here, same problem, same actions. I did manage to get sync going (travel cable plugged directly into laptop's usb port, no cradle, no usb hub) and the syn started.. BUT, calendar on the iPhone comes up empty, vs Outlook which is is full of entries. Syncing contacts, calendar, and bookmarks takes over one hour, and in the end I had to kill bookmark syncing because it was stuck (syncing bookmarks should be extremely fast).
Further, the files in C:\Documents and Settings\<your name>\Application Data\Apple Computer\SyncServices\Local Are HUGE (currently 2.3GB!), and multiplying.
There is clearly bugs in the sync client for 7.7/2.0. I know of no reliable workarounds. Apple has to fix this.