On Windows, RLM stores persistent data in the “system_drive:”\Documents & Settings\All Users\Reprise directory.
If your system is set up such that permission to this directory is denied for non-admin users, then non-admin users will not be able to create (or use) rehostable licenses.
If this is the case, login to the system as an administrator and set the permissions so that all users can read and write to this directory.
Note that you might see a similar error when using a roaming license or when attempting to start the license server.
Also note that deleting, copying, or otherwise modifying this directory will lead to problems later.