I actually had this same issue when trying to flash my N800 from a Windows box. It was maddening and probrably had something to do with the USB driver.

Anyway, I was too frustrated to debug it, so I just flashed from a Linux box. It's really much easier, IMO.

If you don't have a Linux box, just download a linux boot ISO like Knoppix. Their free and you can boot from it into a Linux environment that's more than capable of running the Nokia update utility.