I had this problem plaguing me too because I've searched everywhere on how to fix this freaking thing. So here is my solution which worked in 1 try. Try it Hope it helps you.
1. From your Control Panel, select the Flash Player "button/icon/Link"
2. Select the "Advanced" Tab, make sure you have both, "ActiveX Version" & "Plugin Version", installed and updated to the same version. I'm currently running 11.7.700.224 (Note: "Check for updates" says it's up-to-date.) and I'm running Windows 7 64bit/32bit systems.
3. Open IE, go to the Gear Icon, that should be located in the upper right corner of IE and select the "Internet Options" setting. Now, select the "Advanced" Tab and select the "Restore Advanced Settings" button. (Note:This will set the needed settings to allow the Pandora gadget to work in the sidebar gadgets).
4. Exit/Close the gadget completely and then re-add it to your desktop or just try "Retry" button too and it should now bring you to the login screen.
5. Login and enjoy!