This is what helped me... Courtesy OP http://forum.xda-developers.com/showthread.php?t=893948
Not able to make a usb connection to the phone when in Magldr
Error Description: USB init failed
Info: .\RSPL\RSPL.cpp (723)
Go to the Activesync icon in the bottom right corner, right click on it and untick the option "Allow usb connections" and then connect the device again. Run daf.exe (or install.exe) as administrator by right clicking on it and selecting the option (if using Windows7 or Vista). Hopefully the usb drivers will then install and the Android Rom will flash.
Another option could be to uninstall and reinstall Activesync or to try different usb ports on your pc. If that doesnt work and you have Windows XP then you need to try on a machine with Vista or Windows 7.
If none of this works then try taking out your micro SD Card and repeating the process or flash a Custom Rom before you flash Magldr rather than a Stock Rom.
Lastly you could try starting the NAND installer with the phone unplugged and then plugged the phone in. The installer should immediately detect your device and proceed to flash.