Got it working !!
Ok. I went to wireless setup and tried to set it up again, but it failed saying can't detect wireless. So I went and checked the services and saw that only Zune Network Sharing was listed. The other two "Zune Wireless Configuration service" and "Zune Bus Enumerator" were missing.
So I went ahead and uninstalled zune. To install back, since the setuppkg never works for me, I unzipped it and installed zune fresh from "Zune-x86.msi" directly.
That put back all the three services and the wireless config went smooth. Then I tried the wireless sync and like clock work, Zune was detected and now it's syncing.
One thing I should mention though, Zune Bus Enumerator service is setup to run with an IIS user account. not sure why but it never runs. The moment I switch it back to Local system account it works fine. But not sure about any security issues here. Anybody aware of this ?
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do Zune, not iCrap

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