Depends... what bootloader version is on your device? It appears on the bootloader screen at the very bottom.
Try running the upgrade without putting the phone in bootloader (i.e. let it boot into Windows and then plug it in, let activesync detect it, etc. Then run the upgrade.)
Also make sure you're cabled directly to a USB port on your PC (no cradle or USB hub in the chain), and that you're running windows xp. Reboot both phone and PC... just a few general suggestions.
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