Alas and unfortunately, Illass has not answered the question since iTunes is working OK.
I have just discovered the same issue with my iPhone 4S updated recently with IOS 7.1.1 which is specifically; the iPhone happily works with iTunes for backup and syncing etc. but the disk drive element fails to show. There are two devices that the iPhone uses in Windows 7:
(1) "Portable Devices > Apple iPhone": This device states "This device is not working properly because Windows cannot load the drivers required for this device. (Code 31)". This is the error described by both me and coolytz_06.
(2) "Universal Serial Bus controllers > Apple Mobile Device USB Driver": This is the generic data transfer device that iTunes uses. If this device reports a Code 31 if it is not working, then Illass' solution above will apply.
Now iTunes does not start automatically for the same reason, so this is started manually after connecting the iPhone. Both devices point to the same location (the iPhone).
I've also tried fixing the registry which is a great way to get stubborn USB devices working again but this has failed also. So my hypothesis is that IOS 7.1.1 has introduced this problem so perhaps a future IOS 7.1.2 will fix it again or a new Apple iPhone device is released with a fix. Trouble is, I failed to backup my previous iPhone release to roll it back and test this hypothesis so we'll just have to await more community reports.