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I have the same problem Pookeysgirl described when I tried to update my daughter's original Kobo. The error message after the "Found new hardware" popup stating it failed to install the needed software, and the Kobo that just sat there, in update mode, with the update wizard unable to detect it. Bypassing the "found new hardware" screen nets the same result.
Fortunately, resetting the device made the device usable again (with the 1.4 firmware.) I haven't tried my other daughter's Kobo yet. It's bedtime and they want their Kobos, so I'll have to check in here tomorrow after they've gone to school to see if anyone has found a work around.
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