I suspect I'm having a similar problem -- Windows 7, my Kindle 2 always connected fine to my old XP computer, but now Windows 7 on the new computer
1) at first, wasn't recognizing the existence of the kindle as a drive on the drive screen, even though the kindle had the "usb mode" screen up and the kindle was listed under device manager
2) after a reset of kindle and reboot of computer, eventually recognized the existence of a drive, (drive G

but hung when attempting to read the drive and eventually told me I needed to format the Kindle's drive (something I didn't do).
How can I fix this, precisely? I suspect I'm having the "network drive mapped" bug, but I don't know how that happened -- I certainly never deliberately created a network drive on this computer.
Any tips?