http://communities.vmware.com/thread/156265

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.”