The only hit I got from that error had to do about the filename being malformed, and that it was fixed when the user having the problem changed one character (they of course didn't say anything about what the filename was, or what the character itself was). If you changed the name of the file entirely and went to using the relative path to the file ("test.mkv" instead of "C:\yadda\yadda\yadda\test.mkv"), then maybe it would work. This also goes for the script itself - if the error lies in VirtualDub and not AviSynth, then it would be the script that has a bad filename.
Can you play the script fine in Windows Media Player or Media Player Classic? That should be the very first thing you try, and would reveal whether the error is in AviSynth or VDub (I strongly think it's VDub, as that was the way it was with the other info on the error message that I found).
It might also be of use to update VDub to version 1.9.7, which is the current stable version.
http://virtualdub.sourceforge.net/