Sometimes Handheld Contact requires a login to the service for it to have the correct permissions.  This is part of the "LOGON FAILED" error.  This has also been used for the "Thread was being aborted" error.

Here are the steps needed:

1. Click on Start and choose Run
2. Type ‘services.msc’ and press Enter
3. A new window will appear with all of your Windows Services.  Scroll down and find ‘HHC7Service’
4. Right click on it and choose Properties
5. Click on the Log On tab.  Click on the button that says ‘This account’ then click on Browse
6. Click on Advanced.  Then click on Find Now.  This will produce a list of user accounts.  Locate a Windows account with Administrator privileges on the Windows computer.  Click on the name to highlight it.  Note: If you don't know which account to use, contact your network Administrator.
7. Click OK.  Click OK again.
8. The password section will already be filled in but it’s with the wrong info.  Simply erase this and then enter the Windows Password.  This is the one you use to log into the computer.
9. Press Apply.  This will take effect on the next time you restart the service, so you will want to click OK on the warnings.  Then click OK again to close that window.
10. Right click on HHC7Service again and then choose Restart.
11. Go back into Handheld Contact and attempt to sync.

If the login is added properly to the Handheld Contact service, you will not run into any error messages or problems.  If you have error messages when restarting the Handheld Contact service, then this is an indication that the Logon steps may not work as desired.  Changing the login to a different user (such as Administrator) would be recommended.