Peter I have the same setup Win7 64bit (although using the ES400). I have not tried beta5.4, but don't think that is the issue. It could be that they do not have the paths to the cabwiz executable correct. One thing they can try is the command line:
From the application folder.
Also try having WMDC up/connected prior to building.
Rob, Thanks for the reply. The partner had checked the paths and found they were stated correctly. In fact the issue was intermitted and happy to report that it was resolved by uninstalling and reinstalling the WinMo SDK. The partner is now able to deploy to ES400 and WinMo emulator seamlessly.