Hello,
I'm having the same problem that has been mentioned many times in this thread. I am using windows vista on a laptop with a Duemilanove with an ATmega328. The blinking light program that appears to come default with the board works fine.
My best guess is that the problem lies with the naming of the COM3 port, which I understand from past experience is the USB port if you have actual serial ports on your computer, which I do not. Vista does not have any "ports" submenu in the Device manager, but I do see a "FTDI FT8U2XX Device", which my computer says is based at location "Port_#0001.Hub_#0001". I have 4 USB ports and when i change the USB connection physically, it will change to Hub_#0002-Hub_#0004. Within the Arduino sketch program, I can only select COM3 and this option remains checked regardless of whether I have a device connected or not.
Any advice? I am really confused on this port naming business.
Edit: I should also mention one last thing that Vista automatically detected drivers for the device the first time I plugged it in. I'll reinstall the drivers, just in case.
Double Edit: I tried adding a generic COM port just to make the option show up in device manager but it starts with COM5! I try to change the name to COM3 or COM4 and it says they are in use even though I find no evidence of their existence within the Device Manager. Wow, I really hate this computer right now.
Triple Edit: Decided to give up and just use a friend's desktop and it worked first try :P.