Following are my observations and possible steps to
1. When the phone is upgraded to Android 2.3.4 and above (mine is 2.3.6) Kies stops recognizing the phones and USB connection / Serial port connections etc get reset on the phone
2. Even if proper drivers are there on the laptop (mine is Windows 7 64bit) they are not recognized
3. Device Manager shows "unknown device"
4. Updating the driver also does not result in any help
5. solution lies in the phone
a. key in the dialer *#7284#
b. it has 4 option there..
c. For USB. select the PDA.if it already selected to PDA. reselect it by select MODEM and then PDA again.. Only change the USB setting.. andthen press back. try reconnect (thanks to napi1 @ androidforums.com/samsung-galaxy-s2-international/447145-sgs2-kies-not-syncing-os-2-3-5-a.html#post3484588)
6. The Laptop will start recognizing the required drivers and install them