I get the same error with the following settings:
general cart setup - "Show Login Screen" checked or unchecked
Confirmation Page Setup (Before Payment) - "Require Login" unchecked
Confirmation Page Setup (Before Payment) - "Hide Login and Password" checked
If I have the "Show Login Screen" checked, when I start the checkout process on the "Welcom" screen, I have the option to login (which works) or create an account which gives the error on checkout.
When I click the "Continue" button in the the Create an Account area of the Welcome page, it directs me to the "Ship" page. Should I be redirected to a DNN signup page first and then back to the ship section or does it go directly to ship and then through the rest of the checkout process?