I have run into about 20-30 people over the last couple weeks that were having trouble sysprepping and they all narrowed it down to the same thing; their anti-virus application. It seems that the Sysprep tool is sometimes not working with a lot of the 3rd party anti-virus applications.
Sysprep sometimes not working with 3rd party anti-virus apps
Anti-Virus Applications with Known Issues
- Norton 2009
- ESET NOD32 4.0 (User reported issues)
Tip from Erwin below
“If you get the error, boot with shift+F10 and add the parameter /SAFEBOOT:MINIMAL”