I had the same problem. Fresh install of VMware Workstation 7.1.5 on Windows 7 64bit. Whenever I tried to read a CD/DVD on a guest I would get the error:
Cannot connect virtual device ide1:0 because no corresponding device is available on the host.
No matter if I was installing an OS from scratch or booting to a boot CD or installing software on a running guest. I tried copying another VM from another PC running VMWare Workstation 7. Same issue. I tried copying VMs from PC running VMware Server 2.0.2. Same error. Nothing helped. Also found that EVERY VM on the system had same dropdown selection for hardware device "CD/DVD IDE" - AutoDetect. No drive letter available, only "AutoDetect". I tried changing the IDE settings to every option available including LEGACY. I tried SCSI settings, nothing helped.
After reading this post, I thought of another fix. I went into device manager (right click My Computer - Manage - Device Manager) and deleted (uninstalled) the CD/DVD ROM device. Then right click on My Computer at top of Device Manager list of devices and select "Scan for Hardware Changes". Bingo!!!
Now all VMs have a Drive letter in the CD/DVD IDE device - AutoDetect and E:. Now every VM can access the CDROM drive and boot to the CD/DVD drive if needed.
Very frustrating problem and VERY glad to have found a solution.