This particular error can be a pain in the ass to track down, and it will cause Team Build to be unable to create the drop directory. But there are only really two causes for it.
1) You will generally start seeing this error after a problem occurs with a build machine that causes you to recreate the drop location (meaning, it’s the only time I have seen it). Or something dealing with you remaking the drop location.
2) It can also come up with cross-domain development environments.
If you think you are experiencing problem #1
1) check whether the same same build agent for all the builds
2) check whether instead of an alias to refer to the machine you can use the IP
If you think you are experiencing problem #2
1) 9 times out of 10 this is a domain trust problem. Simply put, a TFS user domain doesn’t trust the TFSService account, thus when users are added the TFSService account doesn’t have the read permission on the domain controller. So you can either implement the domain trust or change the TFSService account to use the other domain.