This has to be the most common problem that I deal with and luckily there is an easy fix.

I regularly have users coming to me who connect their device to Windows XP. Their devices are charging and the USB ports all look okay, but ActiveSync fails to initiate and cannot be made to connect. I have found this to be a cross device issue and can crop up even after a person has made a successful connection.

1) From the Start Menu, go to Settings and select the Connections page and choose USB to PC

2) Now untick Enable Advanced Network Functionality

Once you press OK, ActiveSync will automatically connect

Thanks Biomehanika.

Chris Herrera explains this  -

With the release of Windows Mobile 5.0, Microsoft changed the protocol used to sync via USB from PPP to RNDIS. This has caused some problems with VPNs and other networking software installed on the PC you sync with. So with AKU 2.3, Microsoft added back the ability to revert back to PPP. You can use this option to change the USB functionality for ActiveSync 4.x as well as Windows Mobile Device Center (WMDC) to improve network compatibility.

This has answered the question that I never got around to asking:

What exactly is does Enable Advances Network Functionality allow?

Thanks Laura

This is the Microsoft article explaining this:

http://support.microsoft.com/kb/938323