I was getting the same error. I took these three steps, and all is now working - im not sure if all three 3 steps contributed to success, or any one of them - but taking these measures definately worked for me (im running Windows XP by the way)
The phone should be connected to the PC at all times during these steps.
1) Install MAGLDR using admin rights. This was done by right clicking the Magldr.exe and selecting 'run as', then clicking 2nd option, signing in as a user with admin rights.
2) Open ACTIVESYNC, 'File', then 'Connection Settings' - UNCHECK 'Allow USB connections' Reboot phone
3) Right clicking 'DAF.EXE' file and running with admin rights (like it was done in Step 1 above). Click Next, next untill its searching for USB connection
4) On phone, select option 4.
hopefully, it should all now work
Hope this helps.