It's possible that Windows was installing drivers
in the background the first time you plugged it in, causing the "unplugged" sound to play. After a few moments you might have heard the "plugged in" sound again and then it would have been ready.
Could also have been a simple glitch - possibly a loose contact inside your USB jack. Anyway, you seem to have gotten it working which is good.
On a side note, you can install Windows 7 over itself just like XP, no problem.