This happened to me earlier. Did you try any of the hacks? This is what I did to get mines to sync.
Undo any hacks you have done.
Uninstalled the Zune program that came with the CD.
Download this.
http://www.zune.net/en-us/meetzune/software.htm
For me, the set-up only didn't work, so open up your CD. (D:\ etc.)
Extract the Zune thing you just downloaded.
Copy the Packages Auto-run and paste them into the Zune folder you just extracted.
Run the setup and go through it normally. When you have the option to skip, do not skip, let it do it's own thing.
And it should work. You should have been able to grab the 1.2 firmware while doing the set-up.