Sin, I'm not really sure I'm going to be of any help, but I've spent more time reading your posts this morning (last evening we had guests coming over and I was in a hurry).
In one of your posts you talked about a driver installation window popping up? You almost certainly have a driver problem if that's the case.
So, bear with me while I try to verify a few things - and if you've already done all this, I'm sorry, I just don't have any better ideas.
When you activate Pegasus, is the version number V2.01.0127? (It's on the top in the title bar of the application window). If it's earlier, use Updates->Pegasus Update Manager to update it.
Then, under "Help", the first two choices are "Install Pegasus USB Drivers" and below that is "Install Evolution USB Drivers". When I click on "Install Pegasus USB Drivers", a popup appears that lets me do just that, and it gives this location as the default directory: "C:Program FilesPHPUSB Driver". When I look in this directory, I find these files, all dated 5/6/2008:
phpunin2k.exe
phpunin.exe
phpunin.u2k
phpunin.u98
slabbus.sys
slabcm95.sys
slabcmnt.sys
slabcomm.vxd (Thanks, OneTomcat)!
slabcr.sys
slabser.sys
slabvcd.vxd (Thanks, SinCityFX4)!
slabvcr.vxd (Thanks again, SinCityFX4)!
slabwh95.sys
slabwhnt.sys
Make sure you have all of these files. If not, possibly clicking on the "Install" button will put them there.
I also have another directory: C:Program FilesPHPUSB Drivers (note that it's "Drivers" plural) that has older files, probably from an earlier version of Pegasus. I doubt they're valid now and am tempted to delete them, but if you have the two directories, make sure you check the "USB Driver" one.
If all this checks out, it's all I can come up with - Bill or Corey will have to help you, so, I hope this helps you find the problem.
- Jack