I had some similar issues but with different hardware. Try disabling any audio drivers that aren't associated with your hardware.
In use by another program would indicate that your driver setup is being hijacked either by onboard sound or another device.
If you have a need to use dual devices this might not be a the best option. If the secondary device is using  WDM drivers and you want to use ASIO drivers there will likely be a conflict. In some way there needs to be a device selected as the main audio device and it apparently isn't the VS-700.
 
Right clicking on the speaker icon should show you the available devices and which are in use. Both recording and playback devices can be selected independently.
 
 

 You could always use the dreaded ASIO4ALL drivers.  Sonar won't recognize my Terratect EWX ASIO drivers since they were Vista beta drivers.  Reason doesn't either. All of my other DAWs allow my Terratec drivers. Odd but it is what it is.

I'm having trouble with my Zoom G5 and Sonar Artist demo.  I've reinstalled the drivers an dupdated the firmware for the G5, and set up the audio devices etc but I still can't get Sonar to select it.  My Essence STX is selectable in preferences, but the G5 is there but greyed out.  Does anyone know why?  It's driving me nuts...