EXPLANATION:  This error is caused by improper permissions set in the Windows registry key listed below. The following procedure must be performed using an account that has administrative privileges to correct the error. Please consult the computer’s owner or Systems Administrator if you do not have access to an account with administrative privileges.

NOTE:  Before you begin with the process detailed below remember that instructions for editing the registry are intended for experienced users only.  The Windows Registry is at the core of the operating system. Errors made in editing the registry could damage your Operating System beyond repair resulting in the loss of data and could require you to reinstall Windows. Listed below are articles from Microsoft's Knowledgebase. These step-by-step articles describe how to back up, edit, and restore the registry in your Windows Operating System. Microsoft recommends that before you edit the registry, you back up the registry and understand how to restore it if a problem occurs.
 
Windows XP and Windows Server 2003
http://support.microsoft.com/default.aspx?scid=kb;en-us;322756
 
Windows 2000
http://support.microsoft.com/default.aspx?scid=kb;EN-US;322755
 
Windows NT 4.0
http://support.microsoft.com/default.aspx?scid=kb;EN-US;323170
 
Windows 95, Windows 98 and Windows ME
http://support.microsoft.com/default.aspx?scid=kb;EN-US;322754

Objective: Give the Full Control permission to the following key for the System and Administrators accounts.
HKEY_CLASSES_ROOT\PaintShopPro8.Image

Resolution:

Windows XP Users:
1. If Paint Shop Pro is open, close it.
2. Go to Start > Run
3. Type CMD and then press OK.
4. In the DOS/terminal window, type regedit and then press Enter on your keyboard.
5. This will open the Registry Editor. When the Registry Editor opens, go to File > Export. At the bottom of the dialog, make sure the Export Range is set to All. Choose a filename and location to save the file, and then press Save. The program will automatically add a REG extension when the file is saved. This file can serve as a backup if necessary.  Once the backup process is complete, you can fix the problem with the registry permissions.
6. Left-click the plus sign (+) next to HKEY_CLASSES_ROOT. You will see a drop-down list of KEYS (folders).
7. Scroll down until you find a KEY named PaintShopPro8.Image. Left-click the PaintShopPro8.Image KEY once to highlight it.
8. Now, choose Edit > Permissions. 
9. In the Permissions for PaintShopPro8.Image dialog, Select the Administrator account, and then mark the Allow box for Full Control. Perform the same step for the System account.
10. Once you have given the System and Administrator accounts full control permission, press OK.  Close the Registry Editor and the DOS/Terminal window.
11. Open Paint Shop Pro 8, you should no longer receive the message "Failed to update system registry."

Windows 2000 Users:
1. If Paint Shop Pro is open, close it.
2. Go to Start > Run
3. Type CMD and then press OK.
4. In the DOS/terminal window, type regedit and then press Enter on your keyboard.
5. This will open the Registry Editor. When the Registry Editor opens, go to File > Export. At the bottom of the dialog, make sure the Export Range is set to All. Choose a filename and location to save the file, and then press Save. The program will automatically add a REG extension when the file is saved. This file can serve as a backup if necessary.  Once the backup process is complete, you can fix the problem with the registry permissions. This must be done in a different version of the Registry Editor. Close the Registry Editor. You will see the DOS/terminal window again.
6. In the DOS/terminal window, type in regedt32 and then press Enter on your keyboard..
7. In the Registry Editor window, select the “HKEY_CLASSES_ROOT on Local Machine” window. You should see a list of KEYs (folders), with HKEY_CLASSES_ROOT the first on the list. If you do not see a list of KEYs, double-click the HKEY_CLASSES_ROOT KEY.
8. Scroll down until you find a KEY named PaintShopPro8.Image. Click the PaintShopPro8.Image KEY once to highlight it.
9. Go to the menu Security > Permissions. 
10. In the “Permissions for PaintShopPro8.Image” dialog, select the Administrator account, and then mark the Allow box for Full Control. Perform the same step for the System account.
11. Once you have given the System and Administrators accounts full control permission, press OK.  Close the Registry Editor and the DOS/Terminal window.
12. Open Paint Shop Pro 8, you should no longer receive the message "Failed to update system registry."