If your iPod works on your computer, and you are able to add songs to it without hours passing, USB2 is most likely enabled. XP would give you messages like "this device can perform faster" if it weren't. But check anyway.
Since you've tried everything on your computer, and your other peripherals are working, I suggest trying the USB cradle and DMS on a friend's computer. If it works, then you'll know it's something with your system. If that is the problem, you can try a million different things, but in the end a clean XP install might be easier. (This problem could also occur if your motherboard uses a SiS chipset instead of Intel or AMD. Confirm your motherboard model, if you know.)
If it also doesn't work on another system, cast your suspicion on the cradle. If it's the cradle, it could be fairly simple like poor DMS contact or the wrong (underpowered) power supply, or it could be a lemon. When you insert the DMS in the cradle, the red light should come on solid and green light should flash indicating that the system is trying to access the drive. Is yours doing that?
I really do not think the DMS is the problem. At any point, though, if you want to eliminate the DMS HDD as the cause, if you happen to have an external 2.5" IDE HDD housing that you know works, you can open up the DMS, take out the drive and put it in the external case to check that XP sees it. (It's not complicated, just pay attention to what you're doing so you know how it goes back together.)
Sorry for the lengthy post, but now I've covered everything you can try.
