The setting in File Options that you used is for using a specified password to open the file without asking the user for it. In your case, you appear to have specified an account name password combination that has not yet been defined in access privileges.
Hold down the shift key while opening the file. Then you'll get the log-in in screen popping up again so that you can open the file. If you haven't set up a password in access privileges, you should be able to open the file by entering admin in the account name box and leaving the password box empty.
Thanks for the suggestion. I tried holding shift, and nothing new happens. I get the same error. The only difference is that Filemaker sometimes hangs at startup, telling me that it's not responding. After a while it responds and the "permission denied" box pops up. Are there any alternate commands to do this?
I think you're tripping some other problem, perhaps a user account problem on your computer?
I tried replicating what I thought you had done and filemaker wouldn't let me. If I try to specify a password that is not defined in accounts and privileges, I get an error message and can't dismiss the file options dialog. If then specify a valid password, enter it in File Options, then return to accounts and privileges and delete this password. I automatically get the password dialog when I open the file.