Looking at the error message, it's telling you that the failure is within the "Specialize" pass. Usually this pass is used for things like;
- Setting the computer name
- Joining the computer to a domain
- etc
One mistake I see a LOT here, is where people try to add their (or even DS) variables to the Unattend.XML file. In "ComputerName" for instance, you can ONLY have an asterisk ("*") for an auto-generated name, or a single specific name. If you have a hard-coded name, remember that you can't join this image to the domain - as you'll be breaking the domain membership of the previous computer. If you are trying to set a custom name here, remember to run a template XML file through the Altiris "ReplaceTokens" command, then you can use "%NAME%", or "%ID%", etc.
I've generally also found the "Scripted OS Install" method to be very troublesome, so I have actually generated my own scripts, custom XML using data-source token replacements, etc. You can read about my process (and see my XML file) in my blog: https://www-secure.symantec.com/connect/blogs/control-freaks-guide-windows-7-deployment-part-1
EDIT: Almost forgot. Remember that you can only SYSREP a computer three (3) times. If you intend to have a running build process with multiple staged images... you need to add the "SkipRearm" registry key to the system first. once you hit the limit of three, that image is sealed, dead, and unrecoverable. When starting with W7 I found this out the hard way and needed to rebuild my master image from scratch (after weeks of development and testing). This can cause strange issues as well - including the above error message. So just be aware of that.