I hope this helps those who have been battling the SanDisk / U3 problem for a while.
For anyone that is running Windows 7 64bit and is receiving and searching the internet for the “Windows Error: Windows has allocated a drive letter to the U3 drive that is already taken by another drive on your machine or there are no more drive letters available on this machine.
Try disconnecting any network drives that you have connected to your computer and restart U3 by double-clicking LaunchU3.exe or the U3 System CD-ROM icon. Once the U3 Launchpad is running, you can reconnect the network drives”, when trying to use a SanDisk with U3, the following information may help.
I am running Windows 7 64Bit Professional so these may or may not work on a Windows 7 32bit computer since I have not seen or experienced this on that operating system.
I was able to find some information and leads from the following forums :
I needed more and this is what I have surmised taking all the best information and my own experience, and now have these 2 possible solutions.
The First possible solution
I downloaded and ran as administrator a free utility call "usbdeview". It allows me to see all of my USB devices. I used it to uninstall all devices that were not currently connected to my computer. I also uninstall some of the generic USB hubs it was showing. After rescanning for hardware change and after unplugging and plugging some of the other USB device that got uninstalled when removing the generic devices, I was able to get the U3 launcher on my cruzer to work correctly. This only work for a couple of reboots but wasnt a permanent fix because the problem returned, and have to start this "fix" again.
The Second possible solution
For my environment, this seems to have been a permanent fix as the problem has not come back yet. So if the first fix I tried does not work for you, try the following.
I copied the Launchpad.zip file into another directory on the computer and ran the LaunchU3.exe from there. Initially I received the same error about Windows has allocated a drive letter to the U3 drive that is already taken by another drive on your machine or there are no more drive letters available on this machine. Try disconnecting any network drives that you have connected to your computer and restart U3 by double-clicking LaunchU3.exe or the U3 System CD-ROM icon. Once the U3 Launchpad is running, you can reconnect the network drives. Even though the message came up the u3 launcher did start. After ejecting the U3 and rebooting the computer I have been able to launch the U3 software every time without the error showing up.
As far as using the compatibility mode, I am NOT. It has continued to work even when the system has been shut down and rebooted with the key still attached.