The telling is as true as ever. Update to Windows Mobile Device Center was hanging for some time in optional Windows Vista Updates on my computer and I finally decided to install it this weekend. Installation went smoothly but this morning I found out that my HTC Touch couldn't connect to computer or vice versa. And there was an error in Application Event Log saying: "Windows Mobile-based USB device is plugged in but is unable to make a network connection to the desktop."
I tried many things including rebooting both phone and computer, dropping the partnership, plugging device to a different port, enabling and disabling firewalls, etc. Finally I decided that it was about time to google. After several unhelpful links I found this thread in Microsoft's forums and this post in particular saying:
Settings - Connections - Usb to PC - uncheck the "Enable advanced network functionality". Disconnect device and connect back up. Recognized it immediately
I didn't even have to unplug the device. It was recognized immediately and everything (as far as I noticed) started working. No idea, though, what functionality I lost disabling that "advanced network functionality". Go figure...