uh oh. Not being able to write levels.tmp makes me suspect disk corruption. 
Can you try resetting the device into disk mode (hold menu+lock+left on the D pad for 5 seconds) then check if /Data/com.panic.Launcher exists on the disk. Is there anything in it? Go ahead and delete that folder, reboot (unmount the disk or hit A), and see if that helps at all. If not, the next thing to try is rename the Data folder to get it out of the way and create a new Data folder in its place. Move the global.settings file from the old one to the new one so you don't have to go through setup again.
If neither of those helps, we'll have to reformat the disk. 
We're going to change to a new journaling filesystem driver soon that should keep things like this from happening in the future.