I had the same problem using a six year old Dell atitude with a fresh clean install of XP pro sp3 and no other programs on the laptop. USB would connect with phone in normal mode but not in download mode. So I tried my desktop also running XP pro sp3 which is loaded down with old crap and it worked fine, loaded just perfect. I think my old Dell C840 has slower USB ports and I know my desktop has the faster USB2 ports, could that be the difference?
So far I see many improvements with 2.1 and no problems yet.