In case anyone else is following this thread or having similar problems I'll post an update. After digging around on google for a bit I found a few articles which points to SP1 as well as another possible MS update which when installed seems to cause various usb issues. I'm in the process of rolling back the SP1 update and I'll report back later.
Just for the record after installing Vista SP1 I started seeing various usb related issues. Devices would stop working (mouse, keyboard, hard drives) and other usb devices would not detect properly (mp3 players, digital cams, etc..). Also after every reboot I would get messages that Vista "Found New Hardware", however no matter how many times I tried to install the drivers they would either not work or Vista would find new hardware again after the reboot.
I've tried uninstalling and reinstalling the usb root hub under device manager, I've attempted to also update the drivers for the usb root hub with no success. So now I'm going to try and rollback SP1 and possibly a few other MS updates.
More details to come soon...