I used the fix posted here that involves changing:

C:\Documents and Settings\All Users\Application Data\ElectricSheep\WIN_2.7b11.cfg 

Taken from: http://community.electricsheep.org/node/422

was having the same problem as you, and managed to track it down to a missing variable and table in the config file. I assume this should be automatically set by the program but isn't for some reason.

In order to get rid of that InstallDir error you will need to edit the config file located at "C:\Documents and Settings\All Users\Application Data\ElectricSheep\WIN_2.7b11.cfg" and replace everything in that file with the code below.

Please keep in mind that if you installed Electric Sheep somewhere other than the default you will need to edit the appropriate line in the code below to reflect this.

--SNIP
return {
-- Table: {1}
{
["settings"]={2},
},
-- Table: {2}
{
["player"]={3},
["content"]={4},
["generator"]={5},
["app"]={6},
},
-- Table: {3}
{
["player_fps"]=23,
["height"]=600,
["display_fps"]=60,
["LoopIterations"]=2,
["DisplayMode"]=0,
["screen"]=0,
["width"]=800,
},
-- Table: {4}
{
["password"]="",
["negvotedeletes"]=true,
["registered"]=false,
["sheepdir"]="C:\\Documents and Settings\\All Users\\Application Data\\ElectricSheep\\content",
["use_proxy"]=false,
["download_mode"]=true,
["cache_size"]=2000,
},
-- Table: {5}
{
["enabled"]=true,
["nickname"]="",
["save_frames"]=false,
["all_cores"]=false,
},
-- Table: {6}
{
["InstallDir"]="C:\\Program Files\\Electricsheep Screensaver\\",
},
}
--SNIP

After this Electric Sheep should run successfully and change the order of this config file around a bit, as well as add a few more variables but now that it knows where it lives it won't forget.