Until this gets moved to the proper forum, the answer (I'm sorry to say) is:
I have no idea of how to fix it. One possibility is this:
, open a terminal and enter
If any files are listed in the folder, delete them. They may be triggering the error in the background script.
If that doesn't help, maybe the best thing to is move the BackgroundActionScript out of the Startup Items in the System folder in SheepShaver. You'll lose the ability to drop files on the MacOS9 icon and copy them to the SheepShaver desktop, but you can live without that if you know how to use the Unix folder.
You might also want to try disabling some of the extensions and control panels in the Extensions Manager.
Also, if you downloaded the application more than a month ago, you might try the current version, which uses the latest version of SheepShaver.