Finally found the problem.
In ZASS "Advanced Options" > "Virus Management" > "Scan Tagets", deselecting a directory that has an "&" in its name (or in the name of a parent directory) and trying to save the changes
by clicking "OK" will result in
abn "Encountered an error saving settings ..." error.
Pretty dumb.
I imagine there are other characters besides "&"
which are legal for directory names that
will produce
the same
error.
Beware!

Operating System:Windows XP Pro
Software Version:7.0
Product Name:ZoneAlarm Internet Security Suite