Can you tell me the full filepath of the xnaMugen.exe program? (example: C:\xnaMugen\xnamugen.exe).
Also, is the Base Directory line of the logfile actually having those *'s, or are you just removing personal information from the log?
Mine in full:
2009-01-07 21:02:43Z Normal Main Starting xnaMugenPath to the executable is C:\xnaMugen\xnaMugen_debug.exe
2009-01-07 21:02:44Z Normal FileSystem Base Directory: C:\xnaMugen
2009-01-07 21:02:44Z Normal FileSystem Opening file: xnaMugen.data.Shader.fx
DirectX is v9.0c, DDI v9. GPU is just a crappy Intel Mobile 965 Express so could be a driver problem I guess.