Hey, I am wondering if I need to replace the device.

Desktop manager thinks the Wireless Calendar Sync is enabled on the device and will not let to sync the calendar over USB cable. I have pushed IT policy that disables wireless synchronization (the option is not available on the device anymore), reinstalled Desktop Manager and wiped device. None of them worked and I am out of options that I know. Anybody have an advice?

I am using Blackberry professional software not BES.

If it were me, I'd disable wireless calendar sync at the device level...not the server level using an IT Policy.
Change the IT Policy so that Wireless Calendar is enabled again... then push that policy to the device and make sure it's applied successfully.

After that, go into the Calendar options on the device itself, and turn Wireless Synchronization off there.
Calendar > Options > Wireless Synchronization = Off

What is Calendar sync set to in device manager? If it is set to wireless sync can you change it? Have you deleted the Intellisync folder from the PC to get a new configuration? C:\Documents and Settings\USERNAME\Application Data\Research In Motion\BlackBerry\Intellisync

I have tried to turn on wireless sync on the server however, the device does not keep the setting on Off. It automatically changes it to on when it is plugged to the computer. I have also tried to delete the intellisync folder but it also does not solve the problem. Tried to delete the blackberry user and recreate it as well. I have a few other server that run fine and disable the wireless sync. I guess I am going to try to reapply service pack and reinstall the server software. Any other suggestions?

Try to delete the Desktop [CICAL] service book, then run the restore. Once it is restored, undelete the service book and see if that helps.

Would this be the same as wiping the device and activating it again?

Not really. Basically the service book marks the databases as read-only, preventing the data from being restored. By deleting it, it should allow the data be restored. Then you can always undelete it once it is restored.

You are on BPS and I have never used BPS, so I don't know if that service book is pushed to the device. I imagine it is.

I am not sure what you mean by restoring. But wiping the device and activating it gets new service books from the server. The device does not show the wireless calendar sync option because it is disabled by IT policy but once the device is plugged to the computer Desktop Manager shows a message that synchronization is not available because wireless sync is enabled. I cannot turn of wireless sync on the device because it resets itself to option Yes after its plugged in to the computer.

I found a workaround that worked for me: BlackBerry Search Results