Leave the Proiority Boost at 0 and the linker should function normally. Free up some hard disk space and try again. You will have to use the 8.3 filename conventions. This is a general error which could be due to many different problems. In most cases it has nothing to do with 5.0 directly.
Some users report oddities in their source files which caused the error.
Another possible problem is the inclusion of too much debug info. Try turing debug info off for that particular module. The double cursor that shows up when you run TDW under Win95 is due to an anomoly in Win95. Errors Linking VDBT in 16-bit Apps You need to include the proper .lib files. You need to specifically install it.