[Construct]

Alright guys, with the release of the Orange Box, Valve manages to screw us over yet again with updates that wreck your Hammer and other SDK tools. It seems all is lost...

BUT WAIT. AN ANSWER HAS BEEN FOUND

Basically, you need to change your SDK parameters to a new setting in order to run. Heres a step by step list of things you can do:

STEP 1: The Parameters

Go to Steam: Tools, then right click on Source SDK. Go down to "Launch Options." Here it says "Launch Options are for advance users only. Pffft, what does Steam know. Now paste " -engine ep1" in the box and click OK. (Note: You MUST have the space infront of the -, and do not add the quotes.)

STEP 2: Enjoy

You are now ready to run Source SDK free from errors. If this still does not work then create a Desktop Shortcut for your Source SDK, goto Directory, and paste the engine line directly after -applaunch text.

A thanks to Drifter for making this a bit easier and to AFK Blade for finding it in the first place.