Recently I have been trying to create an updated image and keep getting the error "Setup Cannot Format This Partition" after it starts setup. I get this on every PC I try even Virtual Machines. Does anyone know what could be causing the problem?

I have tried building an image step by step, first tweaks, compile, then half addons, then compile and then rest of the addons and compile and this works. It just comes up with this error when I create the image in 1 whole step.

Is there anything I could be doing wrong?

I have no ideal what you are talking about, sorry. Are you making a XPCD? Or are you trying to make a image of the your installed XP. I am sure others will need more info as to what program your using etc.