Visual Studio 2005 comes with a device emulator v1.0 that you can use to test various applications. Under Windows Vista the emulator has a problem when using the cradle operation on the Device Emulator Manager. It simple doesn't connect to the host, even with the correct setup.
The solution for this is pretty simple. Download v2.0 and the Mobile Device Centre application for Windows Vista. To make a connection between the emulator and the host you need to set the connection settings on the mobile device centre to allow DMA connections. After that it's a matter of choosing the Cradle command on the device emulator manager and you're off.
Download for the device emulator can be found here: http://www.microsoft.com/downloads/details.aspx?FamilyID=dd567053-f231-4a64-a648-fea5e7061303&displaylang=en
Download for the mobile device centre can be found here: http://www.microsoft.com/windowsmobile/devicecenter.mspx