Okay, "tracking paused" in the software log can mean the device is disconnected for any reason: Pulled the plug, USB traffic errors, or some issue causing a disconnection in version 1.2.0 of the software.
Next steps are to identify whether the device is detected, whether it is ever streaming, and if it is communicating with the Leap Motion Control Panel.
So with version 1.2.0 (WinUSB driver enabled and all), could you run the service from the console again? That is, stop the Leap Service in services.msc, then go to C:\Program Files (x86)\Leap Motion\Core Services and run LeapSvc.exe --run from a command prompt. Also, leave the Leap Motion Control Panel open with the "Show Software Log" window while viewing this.
Last time I know you got the useless "WebSocket server started, Tracking resumed, Tracking paused". In version 1.2.0 it's possible for the service to detect a device and unpause it even when tracking has been paused, so let's try that. If you unplug and reconnect your device across different USB ports, do you see more information in the console and the software log?
On my machine I see prints like so from the LeapSvc.exe console :
[15:25:29] [Info] WebSocket server started
[15:25:29] [Info] Initializing WinUSB
[15:25:29] [Info] Initialized WinUSB
[15:25:29] [Info] Leap Motion Controller detected: LP
[15:25:29] [Info] Firmware version: 17
[15:25:29] [Info] Firmware is up to date.
[15:25:29] [Info] Processing initialized
[15:25:33] [Info] Reversed tracking orientation
[15:25:35] [Critical] Could not obtain information about a completed frame
[15:25:35] [Info] Tearing down WinUSB
[15:25:35] [Info] Leap Motion Controller disconnected: LP
If you see no messages other than the three you originally saw, then the device is not even getting detected. If you see messages but any detected device gets followed by an unwelcome "Tracking paused", then we know the device is getting detected but then disconnected. And if we see positive messages on the console but not in Leap Motion Software Log, then we can suspect a service<->client communication problem.
Thanks so much for your help so far in tracking this down.