You need Zune to connect from Visual Studio 2010 to Windows Phone 7 Device to deploy applications from Visual Studio. This connection mode does not let you allow to debug with Media Library.
You can connect to Windows Phone 7 from Visual Studio 2010 using the Windows Phone 7 Connect Tool.
The following link from Sebastian Schütze’s blog is helpful:
Get the following tool
Use the following link to use the Connect Tool
I have given below excerpts from this web site
To use the Windows Phone Connect Tool
Open a command prompt and navigate to the directory containing the Windows Phone Connect Tool (WPConnect.exe). The location of this file will be %ProgramFiles%\Microsoft SDKs\Windows Phone\v7.0\Tools\WPConnect for 32-bit installations. For 64-bit installations it will be located at %ProgramFiles (x86)%\Microsoft SDKs\Windows Phone\v7.0\Tools\WPConnect.
Connect your Windows Phone to your computer and ensure that it is detected by the Zune software.
Close the Zune software after your Windows Phone is connected.
At the command prompt, enter the command WPConnect.exe.
You will receive confirmation that your device is now connected. Also, you do not need to disconnect from this tool. At any time, you can re-establish connectivity with the Zune software by launching the Zune software. However, after reestablishing connectivity with the Zune software, you must repeat the preceding steps if you want to debug an application with media APIs.
You should now be able to debug your application without the Zune software running.