I'm seeing the same error. I have MC 12.0.139 installed on both client and server and no other versions of MC installed on either. Library server used to work fine (up until 12.0.130, which was the last version I tried). Perhaps the 130 -> 139 upgrade failed to update something somewhere?
Edit: I just noticed on the server side: Services & Plug-ins -> Library Server it says:
01/09/07 10:42:18 - JRiver Library Server Version 1.0.33 starting...
01/09/07 10:42:18 - Starting Auto Detect beacon
01/09/07 10:42:18 - Failed to start sharing
I don't know what the "failed to start sharing" part means, but it doesn't sound good.
Edit #2: I also noticed that when playing around with this MC crashed pretty frequently. One crash that has happened a few times is I try to change the Server port number and as soon as I hit OK MC crashes. This doesn't happen every time, but I'd say roughly 1 in 3 times.
Edit #3: I found my problem. For some reason I'd set the Remote Server (not Library Server) to the same port number. This was making MC unhappy. Turning off the Remote Server fixed this. It'd be nice if MC detected this and gave a helpful message, though.