There was a problem creating the specified component (value1) of the output dataset (value2). An example of where this might occur is when attempting to create the output grid, the component VAT.adf or Dblbnd.adf files could not be generated in the grid's data folder. There may be a permissions problem, or it may be an existing file in the Info directory.
Check that a grid folder of the specified output name does not already exist. Remove it, if so, or specify a different output name. Also, check the Info directory of the workspace for any "orphaned" files.