Of the two Sprint Diamonds I recently recieved, one just got this problem. Performed all the steps so far in this thread and still nothing. Tech support suggests to take it in to the store for further checking and possible replacement.
Edit:
Okay, being I am not happy about having to return this unit, I ran each step again as mentioned (back in post # 61) with the exception of waiting for the pc to finish performing each step before going to the next one. (Patience is the key here. If I do each step too quickly such as clicking on Explorer window or a drive, it will freeze). Eventually the format dialog box does appears (took me about 10 minutes). I then reformatted it (another 5+ minutes of waiting) and bingo, Windows at this point now sees the drive in Exlporer without freezing up any further, but looking at the Touch Memory setting, it still does not show the Internal Memory.
So at this point I take out the battery cover and hit that reset button, the phone restarts and then it sees the internal memory. But of course, at this point I have to re-enter the unlock (MSL) code to reprogram the phone number into the phone and reinstall all my contacts, programs etc.
If it happens again, (hopefully not) I might take up tech supports recommendation and take it in to get it exchanged for another one. Regardless, I will take heart to what others have said about not using activesync to move files to / from windows / phone.
TS