Arduino Fio and Xbee pro 900 Connection problems

The Arduino FIO looses connection with PC when the Xbee is connected. It works well when it is disconnected (for example when we run the blink program on arduino alpha for the LED to blink, with the xbee disconnected, it works fine. But as soon as we connect it and run XCTU all communication is terminated).

We tried running cool term and the fio xbee configuration tool and both have also failed to establish communication. We have the series 1 xbee, so there shouldn't be a problem with the compatibility.

We are stuck and open to any suggestions..