PROBLEM SOLVED! I've had the same problem and I was able to resolve it.
I had my camera professionally cleaned and serviced. Besides being cleaned, the gears that turn the tape were tweaked and set back to the correct specifications.
I had used tape head cleaner I bought at camera stores to clean my camera, but that was not good enough.
I can now digitize without any problem.
There is one catch. The tapes I shot with my camera before I had it serviced play back fine, BUT still can not be digitized without getting the 'can not read source tape' error message.
All new tapes recorded with the camera AFTER it was PROFESSIONALLY CLEANED and had ROUTINE MAINTENANCE digitize perfectly without any error.
I've seen this problem crop up on other message boards when I was doing research into this problem, and there never seems to be any solution to this. I finally found a message forum from 3 years ago, in a deep Google search, where a guy solved this problem by having his camera professionally cleaned and serviced. I took his advice, and it solved the problem of 'CAN'T READ SOURCE TAPE'
BRAVO! FINITO!
By the way, I went to a place in Burbank, California called TEK Media Group. There phone number is 818-244-4440
It cost me $350 to have the camera cleaned and serviced. They said the the drums were dirty and the tension was off too.