This occurs when a Windows 7 system has been sysprepped three times -- KB929828.

To overcome this, you will need to do the following:

1) Inside the Sysprep Unattend.xml file located at c:\windows\system32\sysprep, delete skiprearm=1 from the section. In order to edit the Unattend.xml file, you will need to slave the HDD onto a working machine in order to have access to a text editor for editing the file.

2) Open Registrey Editor & Set HKEY_LOCAL_MACHINE\SYSTEM\Setup\Status\SysprepStatus\GeneralizationState to 7 

3) Open Command Prompt as Adminitrator & run below commands,

                      msdtc -uninstall

                      msdtc -install

4)Open Registrey Editor & Set  

HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\SoftwareProtectionPlatform\SkipRearm to 1

5. Reboot and  run Sysprep again