The Salesforce for Outlook installation instruction were followed and the sync says 'Sync complete' but there are errors that I don't understand.

1) In Last Sync error: Sync Failed; Unable to communicate with Outlook. Restart Outlook and try again.

I have tried to start Outlook again and has made no difference.

2) Sync: View Sync Log:

2012-09-26 11:09:00,627 INFO  [Contact]SyncEngine status changed to Errored
2012-09-26 11:09:00,627 ERROR [Contact] ***********  Sync Engine  ***********  Error Sfdc.Outlook.OLSessionException: Object reference not set to an instance of an object. ---> System.NullReferenceException: Object reference not set to an instance of an object.
   at Sfdc.Outlook.CategoriesWrapper.RefreshFromRawCategories(categories categories)
   at Sfdc.Outlook.CategoriesWrapper..ctor(categories categories)
   at Sfdc.Outlook.OLSession.GetCategoriesFromStoreOrSession(OLRecordId storeId)
   --- End of inner exception stack trace ---
   at Sfdc.Outlook.OLSession.TranslateException(Exception ex)
   at Sfdc.Outlook.OLSession.GetCategoriesFromStoreOrSession(OLRecordId storeId)
   at Sfdc.Synchronization.CategoryManager.VerifyCategoryState(IOLSession outlookSession, SfdcOlEntityType syncEntityType, IList`1 syncFolders)
   at Sfdc.Synchronization.SyncEngine.CheckIfReadyForSync()
   at Sfdc.Synchronization.ContactSyncEngine.CheckIfReadyForSync()
   at Sfdc.Synchronization.SyncEngine.Start()

This is standard procedure for syncing. No customization.

Microsoft Outlook is 2007.

Windows is Windows 7.

Can anyone provide basic understanding?

Thanks,