Hey guys, I'm a recent grad, so relatively knew to using Arc 10...and GIS for that matter,and I currently have lots of time on my hands. I frequent the forums and came across this post and did some quick web searching. I found some stuff and thought I would throw out some ideas for you to try, if you haven't tried them already, since no one had really responded.
The first thing I came across is that it may be a space availability issue, so you might try setting the temp and TMP variable in the Environments variable to a disk which has adequate space. Or another thing I found was to try and copy your files to another drive/folder and seeing if you still get the error.
If you know for a fact that it is not the space issue, the other thing I came across was to try using the clip tool and set the Output Extent as the mask shape file, as well as checking to Use Input Feature for Clipping Geometry.
So I'm not exactly sure about each of your data sets and what your trying to do, but hope my 2 cents can help in some way.