Fixed it! Thanks to the internet gurus..
Zune usb device now connects to Ubuntu and Vmplayer XP.
Run this command first to mount usbfs to the file system used by vmware /proc/bus/usb.
mount -t usbfs /dev/bus/usb /proc/bus/usb
Dont forget to disable usb 2.0 in the bios.
http://home.comcast.net/~jcheck10/Zune-Ubuntu.png