Gns3 give this error when dynamips directory is not define correctly or "hypervisor manager" setting are set to default setting.
- For hypervisor manager setting open the IOS image and "hypervisor\external hypervisor" tab ensure that the default settings are selected (127.0.0.1, 7200, 10000, 2000)
- click on save button.
- Verify the Execution path from edit\preferences\dynamips to (C:\Program Files\dynamips\dynamips-wxp.exe.