I am using Delphi 2007. When I try to create a new VCL Forms Application (File->New->VCL Forms Application) the IDE immediately responds with the above error.
I had this happen once before, and even thought I had asked for the answer on StackOverflow. But for the life of me can't find the answer. If I recall it had to do with an actual unit1.pas file being somewhere it should not have been.
I finally stumbled up the problem. Tools->Options->Environment Options->Default Project was set to E