This error is annoying.  No idea why it happens, not sure if netbackup or anti-virus locks up and or corrupts the polyserve password file.  So far we opened a support case, but if I remember correctly you have to reboot the server to correct this error.  Fortunately you can use the matrix console from other machines, so it can wait, but very annoying.

The solution of rebooting the server worked, so this indicates to me that the file was not corrupt but some type of "permission denied" happenned.   Almost as though this server did not get a "clean reboot" as both times I remember getting this error was right after a reboot or power cycle of the machine.

Related entry in the Matrix event log:

Event Type: Failure Audit
Event Source: ClusterPulse
Event Category: MxConsole
Event ID: 100
Date:  3/13/2008
Time:  2:54:20 PM
User:  N/A
Computer: DEVPLYSQL02
Description:
10.10.49.162    2008-03-13 14:54:20 FailureEventAudit -  user 'admin' at <10.10.49.162:3201>:  failed authentication, Sys_error(C:\PROGRA~1\POLYSE~1\MATRIX~1\conf\mx_passwd: Permission denied)

Screen shot of the error: