@BrianDash Both LM-Technologies dongles should work right out of the box with Windows 7. Here is a link to LM's support page: http://lm-technologies.com/downloads/
What you are probably seeing is that the password entry screen is popping up and either not asking you to enter the Twiddler's pairing password, which is 1234, or it is asking you to confirm an incorrect password.
We have seen this in the past and the solution is to cancel the notification window and continue to try to pair until the window pops up that asks you to enter your pin pops up. Once you have entered your pin and paired your Twiddler with your computer, you will not have to do this again.
We have noticed this happens with the LM505. The LM506 usually goes to the "enter pin" screen right away.