The error you saw was most probably caused by memory fragmentation. Windows 32 bit provides only a limited amount of memory to 3ds Max (as you know, default is only 2GB). This memory can get used up in chunks which can cause a memory allocation to fail depending on how long Max has been running. Thus, in some cases simply restarting Max and reloading the scene could solve this issue. So it is a fundamental problem with 32 bit computing.
In general, we do NOT recommend using 32 bit Windows since Krakatoa is one of the most memory-demanding applications out there. You should be prepared to see a lot of these errors when you push the particle counts higher…
