You have started VMware Server with an out-of-date copy of the application. VMware Server cannot power on virtual machines using this copy (version 2.0.2). To power on this virtual machine, run VMware Server from the default location.
I tried to stop a virtual machine to allocate another processor to it and I received this error. VMware has a knowledge base article that applies to beta versions of VMWare Server 2. In my case, I was not running a beta version, but public release 2.0.2. To solve this error, I removed the guest machine and re-add to the inventory. Then it started up fine.