Due to many users having this problem, I'm posting a guide on how to solve it.
Basicly, you need to install the drivers for your phone, they are special flash drivers different from the PC Suite drivers.
To install them you need
SEUS (Sony Ericsson Update Service) downloaded and installed on your PC (Windows XP SP2 & Vista 32bit only).
Run the program, go through the steps and then connect your phone (when it says to).
Once connected, click the "Back to Start" button (or if available, you can download the newer firmware if you want to).
The drivers should then be installed, and your phone should now be able to be used with XS++ .