This occurs simply because the FPGA Express tools have not been installed. Ensure that you have purchased a FND-EXP or FND-BSX package and that you have used the CD key code found on the back of the CD jewel case.
You can verify that FPGA Express has been installed by selecting Start -> Programs -> Xilinx Foundation Series -> Accessories -> Foundation Express.
A space may exist in the project directory path name; if so, remove that space.
This can happen if you are using Express 3.7, which is not supported by the Aldec-created Foundation tool set. This usually occurs is an incorrect service pack has been installed, or if ISE and Foundation are installed on the same machine. Express 3.7 can be used with 4.2i ISE, but not with Foundation.