I too have this precise problem, as described in the 1st post.
I bought Demigod about a month ago. Have played maybe 20-30 games with different demigods, never been any issues. Today I wanted to play another game, and this error came up. No new drivers, no new hardware, no changes at all, it just went to !#¤!.
I should point out that this doesn't happen every now and then, I've attempted to start 14 single player games now, and each time I get as far as the second loading screen where the arena is presented.
Needless to say, I am quite frustrated - please help.