Eraser won't modify 1600 folders on VPC



I'm trying to run Eraser on my Windows 2000 disk image so that I can re-compress it. I've followed the recommendations (use eraser to overwrite blank space with zeros) but any time I attempt that task--or any other task--I get an error log of about 1600 directories that it couldn't mofify.

The FAQ states that these are in use, but it seems like it's every directory on my system. Is there a workaround for this?
Directories? You are probably using FAT32 file system, and have set the program to clear directory entries? If you only wish to clear the free disk space in order to recompress the disk image, you can either turn of directory entry erasing, or ignore the error. The free space is cleared despite these errors.
I'm running Eraser to zero out the empty space. It runs, but then I get the errors. In taking a second look, it appears that I get about 50 directory errors, and 1550 'failed (protected file)' errors.

The INFO box says it has completed, but I'm not sure if those errors are a sign of anything.
These failures occur because some of your files and directories are in use. Please see the FAQ for further details.