Carol:
You may have applied the flash update to the T3 but there is a Palm Conduit update located
http://www.palm.com/us/support/tungstent3/ which needs to be installed and could be part of the problem as well.
Also, I'd still double check the possibility of more than one user name based upon your post.
Ok, with regards to changing his backup folder to "old", this will have no impact on the conduit sync.
If you look at the sync log it refers to the four PIM files as sync OK. ie, calendar, memos, tasks, contacts as sync ok. The back up for the master PIM files is not saved in the backup directory. If you look in the backup directory you'll find all of the added software backed up there. You won't find files called, address.dat.
It's stored in independent directories under the specific user name. That is: Addresses (Contacts) are stored under the user name\address\ sub folder. In each of these subfolders you'll see a file called or similarly called: address.dat (data), address.aba (archived), address.bak (backup)
You'll see this nomenclature for datebook, memos, todo etc. This is where the Palm Desktop gets it's info from is these seperate subfolders.
Ok, also - don't bother checking the hotsync settings on the T3 - if they were turned off - they would not have showed in the log as they overwrite the conduit on the PC anyway.
So my recommendations: Install the Palm Conduit as noted in the hyperlink (it's about 2/3 of the way down the page). Soft Reset the T3, Set the Conduit Manager to Handheld overwrites Desktop and see what happens after the sync.
Double check that there is not a second user name prior to all of the above and then you should be good.