I assume you are trying to load MM with the same source that you are using from iTunes Cable.
I'm not sure how to parse that. For the last few years I've had address book, ical, etc all syncing to mac.com. I see you later think I have a PC... nope, this is a mac.
I've tried the game of add one entry on one place, see if it propogates. I've done it on both sides. Changes in me.com don't make it to the mac. Changes on the mac don't make it to me.com. This is with syncing set to automatic, contacts checked. This is with manual syncing, too. And, I can reproduce this on more than one mac. (Until they broke it, I was syncing three macs together).
The only thing I can think of to try next is to wipe everything, pray it works, then reimport a dump of my contacts, which will lose my grouping associations.
BTW, the procedure you describe, I did already. No dice.
You did not say what the original "fails fast" was.