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Solution suggested in this entry:
“I just ran into this problem with VMware 2.0 RC2. After reading this post, I checked into the logs and config files and discovered a corrupted xml file named ‘datastores.xml’. When I opened it, I saw a bunch of dots instead of xml-formatted text.
It was located in C:Documents and SettingsAll UsersApplication DataVMwareVMware Serverhostd. There was another file named “datastores.xml.default” in this directory, so I backed up the corrupt file, made a copy of datastores.xml.default and renamed it to “datastores.xml”. VMware started up without a hitch.”