Sorry for the double post, but I thought a bump might be useful for anyone following this topic.
Update: After trying last night what the other two gentlemen have described above, I finally managed to get my phone connected to Kies. (Disclaimer: I'm not sure the solution lay in what they did; will explain later.) Here are the steps I took -
1. Connected my phone to the PC.
2. Selected "Mass storage" mode and mounted my SD card on the phone.
3. Uninstalled the phone and card devices from my PC in Device Manager.
4. Disconnected phone.
5. Uninstalled Kies.
6. Deleted the folder C:\Program Files\InstallShield Installation Information\{D6CD26FD-CD7F-4C86-96A3-EEBFABE5FE47}
7. Restarted PC.
8. Reinstalled Kies (the same version as the one I installed before - v1.5.1.10062_7, which is the latest one available from Samsung's website).
9. Connected phone again.
10. Selected "Mass storage" mode and mounted my SD card on the phone.
Magically, Kies started up on its own and recognised my phone. I then updated Kies via its native "Firmware Upgrade" option: its latest version is now v1.5.1.10062_42.
Actually I'm not sure if any of the above was what "fixed" the problem. Why? Because when I connect my phone and select any other option apart from "Mass storage" (ie "Media Player", "PC Internet" or - get this - even "Samsung Kies") Kies still refuses to recognise that my phone is connected. Not choosing "Mass storage" mode inadvertently causes the tray popups: "Found New Hardware - MTP Device" and, subsequently, "A problem occurred during hardware installation. Your new hardware might not work properly."
Previously I had always selected "Samsung Kies" on my phone in an effort to try and connect. Maybe simply selecting "Mass storage" mode instead would have worked. If you're having problems connecting I suggest doing the latter first, and if it doesn't work then use the steps I outlined above.
I think the key issue is that only "Mass storage" mode allows you to mount your SD card, which then allows Kies to read it.
Anyway Kies is pretty useless in its current version for Galaxy S users, because key Kies functions - Samsung Apps, Phone Book, Calendar, Message Viewer and Memo - are all not supported for the Galaxy S!

These functions were the reason I wanted to connect to Kies in the first place!

I figure Samsung will upgrade Kies once the Galaxy S is ready to roll out in other markets, but til then if you want to backup your contacts, etc you'll only be able to sync with, say, Gmail.

Oh well... hope this helps anyone with trouble.