Wohoo! It works!
Well - I hope this will for others (provided you have an ISP programmer). Here is what I did, after reading all of your efforts, and contacting support@adafruit - who told me to try a 32 bit OS.
Since I got it working, I believe this is a 64bit windows OS issue . I used my win7 64 bit machine with Adafruit's USBTinyISP programmer to re-flash the chip's bootloader with the Leonardo from Arduino 1.0. The Bootloader hex is in arduino-1.0\hardware\arduino\bootloaders\diskloader To do this, I ran jumpers from the USBTiny's 6 pin programmer cable to my bread board to the appropriate atMega32u4 pins. The command from WinAvr is:
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avrdude -p atmega32u4 -c usbtiny -U flash:w:DiskLoader-Leonardo.hex

Next, I dug out my crappy laptop from the closet (win XP) and installed all the supporting software (Arduino 1.0, all the "belt" libraries from adafruit, uncommented the leonardo from the hardware\arduino\boards.txt file). I plugged the breakout board into the USB port and it couldn't find a driver - so I had to edit the .inf file to match the hardware UID/PID, and poof - it worked - mostly. There was a new COM port (Yay!), but there was a "not working" HID device.
(If you want it, the .inf file I edited is attached.)
"So what if it isn't perfect!", I said - I'll keep going. So - I ran Arduino 1.0 from the XP laptop, and uploaded the Belt sketch. After it finished, the operating system indicated two USB disconnects "bee-doop ... bee-doop" and then two connects "boo-deep ... boo-deep". It then proceeded to re-install the COM port and (this time) a successfully working HID device. Cool!
I wired up the board to the LED belt, and it worked perfectly. So - then I experimented a little. I plugged the board into my Win 7 64 bit laptop, and it recognized properly! I uploaded the advanced belt sketch (after adding the timer library). Win 7 did the same double disconnect and reconnect (a little weird), but the result was a working atMega32u4.
So - I think the solution is to program the thing on a 32bit OS first and then try 64bit.
Hope this helps. Good luck - and thanks to all who posted such great information.
- Sean