Sorry for the delay. I did manage to solve my problem. Here is what I did.
First of all, I have a dual boot system. I can boot into Windows 7 or Windows XP. When I captured the file in
Virtualdub, I was using Windows 7. So for the heck of it I decided to boot into Windows XP and try it again. I used the same file that was generated prior using Video Studio. WHen I tried to edit it and then create a file using Win XP, I had no issues at all. And again, that is using the same file that was captured earlier. I have no idea why it worked this time.
As far as questions you asked. I have plenty of disk space...over 500 gig.
The error was "Possible Protected file".