If the hard drive is OK, it should be as simple as downloading the PhatHack DMS Tools (
http://forum.phathack.com/index.php/topic,2605.0.html), and following the instructions to format the DMS to use in your Kenwood. Of course, if the drive is bad, that's not going to work.
Was the DMS previously working in a GM system? Has it ever worked when connected to a computer?
The Phatnoise software may not see the DMS, but does Windows recognize and mount the drive? If so, what are the names and drive letters of the partitions? Which version of Windows?
When you place the DMS in the USB cradle, what happens? Does the green light on the cradle blink? Is it a USB 1.1 or USB 2.0 cradle? If it's USB 1.1, drivers are required, if you have not already installed them.
Alright, that's enough for a start. Reply back here and we'll see what to do next.