Today I just had to solve a problem I have had for a while. When upgrading to Windows 7, I installed Daemon tools lite and everything was working fine. That is until last week or so when I started to get this strange error: This program requires at least Windows 2000 with SPTD 1.51 or higher. Kernel debugger must be deactivated. (Text in picture in Swedish).

It seemed that I was not the only one having this problem. A quick search on Google and the Daemon Tools forums revealed a barrage of bad language and people using the word “plz” a lot. This daemon tools forum post, is a good example. There were a lot of solutions but no one that worked on my box. Apparently Microsoft issued a patch that has wreaked havoc for many users, including me. One solution from Daemon tools was to uninstall this patch.
Since I am not a fan of uninstalling patches I tried other solutions and I found one that works for me: Turn off “DeepGuard” in F-Secure. Do not turn it off all together(!), just during Daemon tools start-up. Allow Daemon to start and then you can turn it on again. Also note that I had to do this even though the program is marked as safe in F-Secure.
This is not a permanent solution and you cannot use the auto start option in Daemon tools, personally I never did anyway.
[Edit 09-09-09]
It is the stangest thing! Once I disabled F-secure DeepGuard and started Daemon tools, everything is working well, even with DeepGuard turned on. The auto-start option even works.
[Edit 09-11-01]
A commenter named Allan solved the problem by turning off the Windows Firewall. Now this is something I would not recommend, however I might work like it did for me and F-secure. Turn off the firewall, start Daemon, turn on the firewall.
[Edit 09-11-10]
My Dameon Tools installation told me a couple of days ago that there was a new version available. This has full Windows 7 support and uses version 1.62 of SPTD. So, the troubles might be over. Get it at: http://www.disk-tools.com/download/daemon
[Edit 09-12-14]
Since people seem to still have some issues I must ask you to verify that you are using the same version as I, since after installing that I do not have any issues about the product. I am using DAEMON Tools Lite v4.35.5 (with SPTD 1.62), which is the version you get if you download from here. Also note that the good people at Daemon Tools have a forum.
[Edit 10-03-15]
Maikk posted a very useful comment: "for those still asking for help and are using vista/7 try running cmd
and type bcdedit /debug off, Vista has a kernel debugger enabled by default, and this needs to be
disabled. forum.daemon-tools.cc/.../kernel-debugger-please-help-19048"