Thanks to everyone for their help.
Just to confirm I have already tried:
Uninstalling the ADB driver via Device Manager and selecting "Delete the driver software for this device" and rebooting.
After reboot, Windows could not locate any drivers and I manually selected the drivers found inside the SDK (08/27/2012,7.0.0000)
The device shows up on Device Manager as working but does not work with adb commands. However, fastboot commands work!
I tried the above with the Naked Driver and had the exact result.
If I boot into the bootloader, I am able to run fastboot commands perfectly!
I have already ruled out my USB port as it works perfectly on VMware.
I am thinking my Windows 7 is messed up somehow and re-installation is looking like the only solution