Trying to debug this problem. I looked at the log file and see:
!ENTRY com.altera.sbtgui.launch 2 0 2010-07-14 13:52:42.311
!MESSAGE The expected Stdout device name does not match the selected target byte stream device name.
!ENTRY com.altera.sbtgui.launch 1 0 2010-07-14 13:52:48.935
!MESSAGE Executing: [
C:\Windows\system32\cmd.exe, /C, C:/altera/10.0/quartus\bin\c
ygwin\bin\bash.exe, -c, nios2-download '--cable=USB-Blaster on localhost [USB-0]' --device=1 --instance=0 --accept-bad-sysid --sidp=Not Found /cygdrive/d/NeuralogSourceCode/2010/CIIScan/software/NLaserCyclone2Lexmark/NLaserCyclone2Lexmark.elf]
!ENTRY com.altera.sbtgui.launch 4 0 2010-07-14 13:52:51.294
!MESSAGE Failed Executing: [nios2-download, '--cable=USB-Blaster on localhost [USB-0]', --device=1, --instance=0, --accept-bad-sysid, --sidp=Not Found, /cygdrive/d/NeuralogSourceCode/2010/CIIScan/software/NLaserCyclone2Lexmark/NLaserCyclone2Lexmark.elf] return code: 16
!ENTRY com.altera.sbtgui.launch 4 0 2010-07-14 13:52:51.294
!MESSAGE Downloading ELF Process failed
Not very informative to me, but maybe someone else can give me a hint.
thanks