Use a different USB port on the computer.....Right click the x10Flash program and chose to Run As Administrator.
a. Unplug your USB cable from PC (unplug the USB cable on the PC, not the phone)
b. Power off your phone (wait a couple seconds after it is off)
c. Press back button and keep your finger on button (keep that back button held down)
d. Plug USB cable to PC (while still holding back, plug it into the PC)
e. Check if the green LED appear
Then follow the onscreen steps.
If it is possible, maybe try this in a different computer. Are you running something strange?
YouTube - ‪Upgrading a Sony Ericsson Xperia X10 from 1.6 to Android 2.1 (Eclair) on a Rogers X10a‬‏
Watch from 1:35 - 2:00 min....The guy in the video is doing it the old way with no graphical interface. But that is another way to do it.
Open the x10 Flash program, remove battery, plug in USB and hold back button....while holding back and it is plugged in, insert the battery.