OK. First, you need to add the location of your SDK to your system environment.
I've added "C:\androidsdk\tools" to the "PATH" system variable. So I can use the adb commands no matter which directory I'm in. The simpler solution is to change directory in command prompt to your tools folder (in adroidsdk), put all your rooting files in there and perform the operations from within that folder.
If you're on XP, right click My computer => properties => Advanced tab => Environment variables (at the bottom) => look in the "system variables" section for 'PATH' => click edit => APPEND your sdk folder to the list of directories. Use a semicolon between each directory.
If you're on windows 7 it's even easier; right click Computer => properties => Advanced system settings on the left side.
If you're on anything else, you're done and can't root. Ever!
jk. Someone else will have that answer.
Mine looks like this:
'...whatever was there before'; c:\androidsdk\tools
Next issue.
I'm assuming you've installed the adb interface drivers (you will see ADB Interface in Device Manager) since it shows up in USB mode.
When you're in PC mode (which you must be in to root), you WON'T see the debugging icon in the notification bar. It won't show up.
After you're done with the first problem, you need to run ADB DEVICES in command prompt. If your devices is connected, you'll see a bunch of numbers with the word device next to them.
You should be good to go from there.
Ask if you have any other issues.
GL
