It is my understanding that 1.0.5 should work just fine. That being said I haven't used that version to verify.
First double check that you have the correct com port selected in the tools dropdown. Arduino will always say that it is connected on COMX (X being the number you selected) regardless of whether or not it is actually connected to that com port. So check device manager to ensure what com port is actually connected.
Here is a few things to try that I pulled from the reprap WIKI for your board
" stk500_getsync
avrdude: stk500_getsync(): not in sync: resp=0x00
avrdude: stk500_disable(): protocol error, expect=0x14, resp=0x51
Workaround
To resolve for boards older than Rev 1.3a, hold the reset button on your Sanguinololu for about 10 seconds. While still holding the button, try to upload the firmware again. Let go of the reset button as soon as the Arduino IDE reports, "Binary sketch size: ###### bytes (of a 63488 byte maximum)". The firmware should now be accepted.
Permanent fix
A fix was added in Rev 1.3a. If unpopulated, solder a 2-pin header to the "Autoreset Enable" jumper labeled AUTO RST on the silkscreen. This is located between the Z stepper motor socket and pins 8-10 of the ATMEGA644P socket. In addition, you should also set your Virtual COM port parameter "RTS on close" to ON. Adding the jumper allows the PC to reset the Sanguinololu board during programming and interactive sessions. Removing the jumper allows the printer to run in standalone mode; that is, the board will not reset mid-print when the PC is disconnected or reconnected.
Other possibilities
Another thing to check is the baudrate in "hardware/Gen7/boards.txt". Gen7xxx.upload.speed should be 115200. The Arduino IDE will not see changes to this file until it is restarted.
Another item to check is whether virtual com port drivers are installed correctly. Make sure you see "USB Serial Port" under the heading "Ports (COM & LPT)". If you see a USB driver in the "Other" category with a question mark, you need to manually select the driver for the FTDI chip with drivers from the website"
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Thanks to all for your contributions