The Microsoft Knowledge Base article mentioned above addresses the following error message:
Your computer does not have enough free memory to defrag the drive.
Quit one or more programs.
According to the article, this issue can occur if you are running Windows on a hard disk that is larger than 8 gigabytes (GB) in size and has a cluster size less than 8 kilobytes (KB). This configuration may be created if you use a third-party disk tool to create a partition on a hard disk that is larger than 8GB in size and has a cluster size less than 8KB.
The default cluster size for drives 8-16GB is 8KB and for drives over 16GB it is 16KB.
If the above is the case, running scandisk, having tons of free space, or freeing up as much memory as possible won't resolve the issue.
Here's Microsoft's suggested solution:
To resolve this issue, contact the manufacturer of the third-party hard disk tool to inquire about a possible update to the software that resolves this issue.