The list cannot be displayed in DataSheet view for one or more of the following reasons:
- A datasheet component compatible with Miicrosoft Sharepoint Foundation is not installed.
- Your web browser does not suport ActiveX controls
- A component is not propelry configured for 32- or 64-bit support.
If you're a SharePoint Dev/Admin/Enthusiast using a 64bit system with 64bit Office / IE, chances are you will run into this issue. I was combing for a solution when I came across this MSDN SP2010 General Q&A forum post.
Special thanks to Jennie E [MSFT] for pointing us to the 2007 Office System Driver: Data Connectivity Components