After a couple days searching the internet for a solution I pieced together what my problem was from several forums and fixed it; maybe my problem/solution is similar to yours. (NOTE: I’m running Windows XP Professional, 32-bit, with Service Pack 3 – so you’ll have to translate my issue into your Windows 7 format because I have no idea how to operate things in that version of Windows.)
I traced the error to the Apple Mobile Device USB Driver under "Universal Serial Bus Controllers". As other forum subscribers have found, everything in the iTunes installation would install perfectly well except for Apple Mobile Device Support, which would "roll back" and fail its installation. However, my problem wasn't with the driver itself -- I had a missing .dll file on my computer for the Hardware Update Wizard that prevented me from updating my drivers and installing Apple's Mobile Device USB driver.
To test to see if your problem matches mine, 'right click' "My Computer"; 'click' "Manage"; in "System Tools" select "Device Manager"; open "Universal Serial Bus controllers";'right click’ any USB driver and select "Update". If Hardware Update Wizard does not open - nothing happens - then your problem is similar to mine. (However, if Hardware Update Wizard opens perfectly fine for you, then your solution may be much simpler: several forums found that uninstalling the Apple Mobile Device USB Driver in "Universal Serial Bus controllers" along with iTunes, Bonjour, Quicktime, Mobile Device Support, etc., then reinstalling everything iTunes, and then re-enabling the new Apple USB Driver fixed the problem.)
But, if Hardware Update Wizard fails to open for you as well, then this is how I fixed my iTunes problem in conjunction with the Hardware Update Wizard issue:
NOTE: I copied a preexisting file of AppleMobileDeviceSupport.msi to my desktop prior to uninstalling everything, so when I tried to reinstall iTunes and Apple Mobile Device Support failed to install all I had to do later when I found the solution was reinstall AMDS from the .msi file. If you do not have a copy of “AppleMobileDeviceSupport.msi” then just completely uninstall everything - like so many other forums suggest - and you can reinstall everything at the end of these steps, hopefully with AMDS if this works for you.
1. Uninstall everything related to iTunes if you haven't done so yet. (For complete uninstall, see: http://support.apple.com/kb/HT1925)
2.Uninstall the Apple Mobile Device USB Driver: 'right click' "My Computer"; 'click' "Manage"; in "System Tools" select "Device Manager"; open "Universal Serial Bus controllers"; locate "Apple Mobile Device USB Driver"; 'right click' it and select "Uninstall".
3. Next, you need to find the missing .dll associated with Hardware Update Wizard: The missing .dll file is called “newdev.dll” that should be located in “C:\WINDOWS\system32\” for Hardware Update Wizard to work. (Again, I don’t know the equivalent folder for Windows 7, so you will need to find out where “newdev.dll” belongs.)
I did a search of the .dll file on my computer and found it missing in "system32". However, I found another copy of it on my computer using “Search Everything” (found here: http://download.cnet.com/Everything/3000-2379_4-10890746.html)– but, you can also use the Windows Search tool to find other copies. There were copies located in “C:\Windows\system32\dllcache” and “C:\Windows\ServicePackFiles\i386”. (I would suggest searching for it rather than locating it manually in Explorer in case it’s in a hidden folder.)
If you can find no copy of "newdev.dll" on your computer then you'll need to find it either on your Windows installation CD or online. Since I already had a copy of it I can't tell you where else to locate it.
4. Copy the preexisting file of "newdev.dll" and paste it into "“C:\WINDOWS\system32\” (or where ever else this .dll file belongs on Windows 7).
5. Reinstall AMDS from AppleMobileDeviceSupport.msi or, if you do not have this .msi file, completely reinstall iTunes. Hopefully Apple Mobile Device Support should install this time.
6. Plug your Apple Device (iPod Touch, iPhone, iPad) into a USB port. Your computer should recognize that the device has been connected.
7. Go back to your USB Drivers under "Computer Management" (refer to step 2 above) and locate the newly reinstalled "Apple Mobile Device USB Driver". If it has a red X over the symbol for the device, 'right click' it and select "Enable".
Your Apple Device should now be recognized in iTunes.
Hope my problem was your problem and this process works for you.