I have lytec 2005 now, but I finally fixed the error in Lytec XE. Excuse my rough terminology -

It seemed that there was a Pervasive locator file that basically told Lytec who was the database server. It noticed that this file was moving around to different clients in the office and thought this might cause a problem after reading some knowledge base articles. Here's what I did.

I turned on my lytec server all by itself, accessed the Lytec practice, found the locator file in the data base folder (it starts with a tilde ~), then modified its property to read only starting with a right click on the file icon, then chosing properites. Back on my running network with multiple Lytec clients, the locator file never moved off the server. Once I did this single change, it was perfect from then on. I think this change basically only allowed one computer to 'hold the ball'.

This error does not seem to occur in Pervasive for Lytec 2005.

Crazy error, I can't figure out why many others did not have this problem! Hope this helps and sorry I didn't post my answer sooner!!!!!