I figured out what was wrong: me.
Well actually, its the differences between the old and new Bluesmirf versions that totally threw me off.
On the old version, a flashing red light means an error occurred. A flashing green light would mean not connected. A solid red light would be connected.
But thats not true on the new version, confusing me. The solid green light now means connected, and a flashing red light means not connected.
Anyway, there are other differences. On the old version, I can just go to hyperterminal, select com6, push connect, and it'll work. Definitely doesn't work this way on the new version.
On the new I needed to go into a bluetooth menu and add it manually. Now I had tried to do that, but I didn't see 'Sparkfun-bt' like it was called on the old version. Instead I saw things like my cell phone, 'mikeys laptop', etc.
I also saw 'Firefly' with a picture of a cell phone, so thinking its just some guys cell phone I ignored it. I tried adding it before but got an error (don't remember why).
Well, I tried adding it again and well . . . it all works now. Bllaaaaaahhhhh!
On the bright side, the old version took like 1.5s to connect, while the new only 0.5s