This is caused by a corrupted desktop file following a backup with Retrospect 1.3. Here's how to solve this issue:
1) Rebuild the Macintosh's desktop file by holding the Command and Option keys down while restarting the computer.
2) Install either System 7 Tune-Up (if using System 7.0 or System 7.0.1) System 7.1
Contact Dantz Development for the latest information about Retrospect versions and updates; search on Dantz for contact information.