This may be a stupid question, but did you have "Hide extensions for known file types" in Explorer turned on when you created your bitcoin.conf file? If so, you've probably accidentally named your file "bitcoin.conf.txt" - that won't work at all. This "feature" is probably the single most annoying thing I've ever had to deal with on Windows systems - and that's saying a lot. Turn it off and leave it off, and your life will be a whole lot less annoying.
That got it, and I feel like a total moron now for not thinking of it.... Then again I'm a linux nut who only uses windows for gaming so....
