Aha! I have just found the true cause in the Recent folder. Not all of the files were shortcuts. This makes the bug trivial to reproduce and it is just what I read on google (years ago theory on the bug).
My "Recent" folder (Windows XP auto-generates -- user has no control over it) that causes a Power2Go 7 internal fatal error has a file called "Desktop.ini". It also has a shortcut called "desktop.ini". Yup, Power2Go code is so ancient that it ignores upper-lower case distinctions and then crashes when it finds a "duplicate". Guys, Windows 95 is so over! Can you PLEASE FIX Power2Go so that two filenames that differ only in upper-lower case are considered distinct files. All modern Windows does that. Otherwise you are stuck with a showstopper bug that is so easy to find and reproduce that you look like idiots (and I just wasted 8 hours of my time getting to the root cause, no thanks to the completely uninformative error message).