I've got a kind of botch for the old ADB server didn't ACK * failed to start daemon * issue which might help, though i haven't seen anyone else with my problem so maybe not. Anyway...
I changed the default install location for my HTC sensation to 2 (SD card), but when trying to revert back to 0 (internal) i was getting this error. Looking in task manager showed there were 2 instances of adb.exe running, one of which kept stopping and starting and was impossible to kill, the other could be killed but then a new instance would start almost immediately.
The only way i could get adb to start successfully was to get my command ready in the command window, go to task manager to end the adb.exe, then when the window came up saying 'are you sure you want to kill adb.exe' dragged that over the command window, clicked OK then immediately pressed Enter to run the command. It seems that the short window between adb.exe being killed and restarting itself is sufficient to run a command, though if you try to do something else it won't work and you have to repeat this process each time you want to run a command.
PITA but it's the only way an uneducated numpty like myself could get round it - hopefully it'll help someone...