I have a solution for this problem:
I was attempting to update an external drive with FCP 10.0.9 projects and events and here is what happened and how I solved it..
I updated the drive.
After saving the originals (as requested) I received the cannot save warning.
I quit FCP 10.1 as instructed.
Re opened FCP 10.1 and opened the new Library anyway, and noticed that all the Events were installed and working, but only 6 of the 22 original Projects had been updated, and the rest were missing. Those six Projects were installed and working.
Closed FCP 10.1
Returned to Finder, removed the Final Cut Projects and Final Cut Events folders from the "Old Final Cut Projects and Events" folder and put them on the root drive. Deleted the "Old FCP projects and Events folder" and put the new Library folder into the trash.
Opened the original Final Cut Projects folder that I had put in the root drive and removed the 7th project and put it into a new hidden folder that I created.
Restarted FCP10.1 and everything (except that one project) updated and functioned properly.
*****
Incidentally I reversed the whole process, went back into FCP 10.0.9, duplicated the corrupted project and trashed the original and then reinserted the duplicate in the 10.0.9 Final Cut Projects folder, but when I went to update I got the same error message. I am assuming the project was corrupted at a deeper level than just the folder, so I will recreate the project in 10.1 from the original media if I need it.
Hope this can help someone else. Feel free to email me directly with questions. misterbarryman@juno.com