Yep...same problem for me, it doesn't matter what mode I select to connect to the PC with, I still get the device not found message.
I have also tried it with USB debugging both ticked and unticked, it makes no difference I'm afraid.
Edit: I got it working just now, I had made a bit of a bags of the htc sync part. All is well now. Thank you so much SUroot, I've moved some games to my SD and can take full advantage of my 32gb card now!