I had the same problems as you. The fix required a bit of messing, but
everything works perfect now.

First try: www.linux.ie/.../threeirelandUSBmodem.php

bare in mind, the settings are for "3" Ireland.

This is what I did:
Edit your wvdial.conf file via terminal. So just type 'sudo gedit' and
try the following settings (you may need to tweak them for your location).

[Dialer Defaults]
Modem = /dev/ttyUSB0
Baud = 3600000
Init1 = ATZ
Init2 = ATQ0 V1 E1 S0=0 &C1 &D2
Init3 =
Area Code =
Phone = *99#
Username = any
Password = any
Ask Password = 0
Dial Command = ATDT
Stupid Mode = 1
Compuserve = 0
Force Address =
Idle Seconds = 0
DialMessage1 =
DialMessage2 =
ISDN = 0
Auto DNS = 1

I saved that file as 'wvdial.conf', (in 'file system - etc' folder).

Now make sure you have modem is connected, do a restart (I do for good
practice). In your network settings make sure you set up a dial up
connection via ppp0

Phone Number (as above)
Userame : User
(Next Tab)
Modem: select /dev/modem
(Next Tab)
Click the 1st and 3rd options

Now if you use Firestarter (like me) make sure you set up a ppp0
connection, this is also a good indication to see if your connecting
to the internet as the ppp0 will show up on the list.

Restart your computer again (I know, crazy about my restarts)

Start Firestarter. Now try opening Terminal, type wvdial and hit
enter! Hopefully you will have a connection. The light on your modem
should stop blinking and just stay on (colour varies depending on
connection quality).