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I am experiencing a similar problem.
I have had my TrackIR Pro 3 for quite some time (on or after June 2004) and bought vector almost as soon as it was available (ordered/delivered in June of 2005).
I have gotten about 3.5 years of use out of this unit.
The first year, it was used for several hours daily.
For the past two years I have been away from home a lot and when I have been home it has been plugged in, but the software was turned off (no leds on).
Overall, I think that my usage has been relatively light compared to many hard-core flight simmers.
It has done an amazing job, but is suddenly getting erratic.
Most noticably, the zoom twitches in and out almost constantly with the x/y axis randomly panning a bit every now and then too.
This post sort of confirms my fear: the unit has simply worn out.
The only thing that makes me think otherwise is the fact that everything looks fine when I check the tracking/heads outside of games... it only seems to twitch inside games.
Any ideas why after all this time it could suddenly have gotten twitchy without any changes in the software (4.1 Build 30)?
I am thinking it could be having a conflict with some other software such as latest ATi Catalyst (I almost always update every time they release another set) or perhaps some recent Windows update (recently they have been forcing updates even when I have autoupdate set to require my permission).

I am planning on getting a TrackIR 4 Pro, but I would like this one to remain functional for use on another PC for Armed Assault co-op play If this one has failed, I can't afford to buy to TrackIR Pro 4 setups

Further information: I tried my TrackIR with my old PC that doesn't have the latest ATi drivers or many of the other Windows updates/etc of my primary desktop.
Prior to enabling Vector, everything looked good.
After enabling Vector, they symptoms were identical to the first PC.
My next test is to try an older version of the TrackIR software.

Okay, previous attempts at uninstalling/reinstalling build 30 had failed, but uninstalling build 30 and installing build 28 worked. Uninstalling build 28 and reinstalling build 30 also worked. There was a file that was not being uninstalled which was overwritten when build 28 was installed and vice versa. So it is my theory that a file was corrupted which was only fixed by this procedure. It just so happens that my baby boy, almost 1 year old, learned to cycle power on my PC at 9 months and cycles it hard every chance he gets. It would not surprise me if TrackIR got corrupted by his activities.

I was wrong, the problem has returned. Apparently it is intermittent hardware failure on the verge of dying altogether... or it is a problem with build 30 and my system since it seems to work fine with build 28 and build 29.

Have you tried turn off any kind of power save feature for your USB ports?

In the "Device Manager" you can right click the "USB Root Hub"(s), that show, and then select properties. On the power management tab, uncheck the box that allows the computer to turn off the USB port to save power (i.e. uncheck the box). Sometimes that has an impact on the connectivity of the devices.

Looking at the View -> Tracking Screen, do you see only 3 green dots, no red ones?

What gaming application(s) are you using the TrackIR with?

I was wrong again... it is showing the same symptoms with build 28 and 29, only works smoothly after initial install.

Tracking screen shows 3 green dots and no red ones.

Gaming applications: SFP1/WOV/WOE/FE series, Aces High 2, LOMAC, and Armed Assault.

I don't believe USB powersave is the problem since I have never changed the setting but never had the problem until recently.
Whe I had a USB powersave problem in the past, it was usually fixed by unplugging and repluggin the usb connector for Track IR or if that failed rebooting the PC. This new problem doesn't respond to unplug/replug or reboots, but does seem to temporarily go away after the software has been changed to a different version.

I am pretty sure it is the Track IR hardware at this point, having tried it in two completely different PCs and observed the same problem when both PCs used to use it without any problems.

The only thing that makes me think it might be a software issue is that I don't see any evidence of this problem in the Track IR views: dots, heads, or graphs.

It could be a hardware failure, that occurs after the unit has been on for awhile.......

New information:
I did observe gauges twitching outside of game.
So, I adjusted smoothing from the default 30 for combat flight profile to 40.
Appears to be working well again.
Since the same symptoms appeared on different PCs, I would say something in the hardware has degraded causing a minor stability issue.
But for now, just a minor shift in smoothing is overcoming the problem.
It is good that it is working since I won't be able to get a TrackIR 4 for a while... need to wait to see if one shows up for Christmas or birthday and recover from holiday expenses.

Sounds good........

Arghh! Has started twitching again...
But I got a Christmas bonus at work, so I have a TrackIR 4 Pro with Trackclip on the way from NaturalPoint.
I saved some money by going for UPS Ground.
Hopefully, it gets delivered while I am home for the holidays (the next 2 weeks)... on 2nd thought, I should have spent a little more to get it here sooner