Last week I received the above error while trying to build a project that had been built many times in the past. The error text reads “Unrecoverable Build Error”, your project does not get built, and that's all the information you can expect to get.
The Microsoft Support Site saved my life on this one: http://support.microsoft.com/kb/329214/EN-US/
All I needed to do was to re-register Mergemod.dll. I am blogging this because I don't know what may have caused this problem, therefore, it may happen again.