For a while I got WMDC working. Then it stopped working. Now whilst typing up this question I got it working again. So although I solved my problem I am still going to post this in case it helps me or someone else one day.
I did all the following - anyone reading this may think it is a lot of steps - believe me you need to do all this!!!
I downloaded and installed WMDC from here:
I downloaded and installed Windows Mobile 6 Professional and Standard Software Development Kits Refresh from here:
I downloaded and installed Windows Mobile 6.5 Developer Tool Kit from here:
I have enabled WMDC to Log On as the Local System Account Per this link
I have followed the instruction from the link below to apply registry settings and install the WMDC Helper Utility:
On the Falcon X3 PDT in "USB to PC" settings I have un-ticked both the following: "Connect to the desktop computer as a USB mass storage device" and "Enable Advanced Netwrok functionality"

In Visual Studio 2008 I started up the Emulator Manager (Tools / Device Emulator Manager). And I right clicked on my desired emulator and clicked connect. I then right clicked on it and clicked Cradle.
Now a month ago when it was working... the WMDC would start up (or I could run it manually) and then I could set the connection settings (note: be sure to use DMA as the connection).

Now today I just could not get WMDC to open up.
Then I noticed that down in my system tray I had an icon called Sync Center. By the way... this little utility is also available in the Control Panel.
Well finally I worked out that in here I could "Set up new sync partnerships". Now I can't quite remember what I did. But I think I "ended" some partnerships and setup a new one for my emulator. Finally MWDC started to work again. Woo hoo, what a relief!
I now notice that by right clicking on my device I can get access to WMDC, Browsing contents and Properties.

Good luck!