I kept getting this error when trying to change the client and server settings of my local Pervasive "client". The resolution of this problem was found here:
http://www.resortdata.com/Customers/Knowledge/kb-dos/K000163.htm
Pervasive defaults to disabling changes to the configuration for Terminal Service clients. I suspect that since Windows XP uses a lot of the same TS technology for console logins, it was falling into the same disabled defaults.
Basic fix was (From linked page):
The Value name should appear as "Restricted Access on WTS Client'", with a default value of "1", which means "no access'. Change the value to "0" and select OK.