Hi msmoffat,
Although not stated I assume you have purchased the DVD version of XPlane 10 and it is an official Laminar Research version and not a steam version.
As you have purchased the USB dongle you don't have to insert Disc 1 to run X-Plane. I also run the USB dongle and all I do is keep it permanently inserted into a USB 2.0 port. Not 1.0 or 3.0 port.
However you also need to download the Hasp Software for the whole system to work. Have a look at the following link which has the software download link shown about halfway down the page. The link is at http://www.x-plane.com/product/x-plane-10-home-use-usb-key/
I would like to think this helps as it works for me without a problem.
Good Flying
Glenn