The problem clearly is related to the command line as far as I can tell. I created a dummy QNEW.KIX as shown below:

; QNEW .KIX

and encrypted it with the following command line:
KIXCRYPT.EXE qnew.KIX \\QNEWSFILE\LOGON\KIX32.EXE %s

Same error! So would someone please confirm this?

MORE INFO:
KIXCRYPT.EXE qnew.KIX \\QNEWSFILE\XXXXX\KIX32.EXE %s - FAILS

[ 07. December 2002, 15:24: Message edited by: ElegantSol ]
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Stephen If the solution to the problem be concise and artfully or ingeniously contrived yet simple and handsome in effect, then the solution merits the adjective elegant. -- K.G. Wilson