We were getting this error when using ArcSDE 9.2 SP6. We use a tool to control which versions users create and how they get posted. Our version tree structure is:
SDE.DEFAULT--USER_MGR.EDIT_MASTER->multiple user edit versions.
A user can only edit their own version. Typically we post the user versions up to default nightly and then delete the edit versions but for a while we tried longer transactions where we would post the versions up to default but keep the user edit versions around. When we did this our editors would be unable to post as they would get conflicts with data sets that they had no permissions on. Since they did not have permissions, they could not resolve the conflicts. The work around was for me to connect to each version as SDE and do the reconcile and post. If the user created a new version they would be fine, it was only the versions that existed from the previous day that had this issue. ESRI thought that this problem may have ben fixed in 9.3 and so in the meantime we went back to deleting the user versions nightly.
Fast forward a year and we are using ArcSDE 10.0. We have users that are editing a Parcel Fabric. Quite often these users get errors when trying to reconcile saying "Unable to reconcile conflicting versions". The message doesn't say which layers are in conflict however the Conflict Manager button is greyed out (because there are no actual conflicts). If I connect as SDE to their version and do a reconcile, there is no conflict detected, the data can be reconciled and posted fine.
I believe this is the same issue albeit with a somewhat different message in 10 than we had in 9.2. In both cases the editor can not do the reconcile but the SDE user can.
This problem is difficult to diagnose as it is intermittent. However, I found that if we let the user versions persist overnight while we do rec/post to default and then a reconcile back down the version tree that this is more likely to occur. I believe the states are getting messed up and causing these invalid conflicts.
-Al Benvin