Hello gnax -
The issue corrected by the firmware update is one that happens on Win7 PCs.
With XP there are a couple of other steps to take. You will need to do a clean install
of the 3Dconnexion software since the problem could be with a registry key.
Your Space Navigator should be recognized in Device Manager in the Human Interface Devices category as shown here.
You can remove it from Device Manager and let Windows recognize it again.
Since the Space Navigator works on another PC , the clean install should correct the problem.