All I did was combine some functions and rearrange until everything worked the way I did before and when I was done I found that the error had disappeared. If it helps, here is my code, its long though.
Code:

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 string senior_product_wmb = <senior_product.wmb>;
string safelevel_wmb = <safelevel.wmb>;

/////////////////////////////////////////////////////////////////////////

var game_started = 0; // will be set to 1 when the game is started
var sound_vol = 70; // default sound value at game start; sound_vol is an engine variable
var video_value = 7; // default resolution at game start (800x600)

//////////////////////////////////////////////////////////////////////////

bmap main_bmp = <main.bmp>;
bmap new_bmp = <new.bmp>;
bmap new1_bmp = <new1.bmp>;
bmap exit_bmp = <exit.bmp>;
bmap exit1_bmp = <exit1.bmp>;
bmap sound1_pcx = <sound1.pcx>;
bmap sound2_pcx = <sound2.pcx>;
bmap video1_pcx = <video1.pcx>;
bmap video2_pcx = <video2.pcx>;
bmap cursor_bmp = <cursor.bmp>;

bmap sound_pcx = <sound.pcx>; // sound volume panel
bmap video_pcx = <video.pcx>; // video resolution panel
bmap slider_pcx = <slider.pcx>;

//////////////////////////////////////////////////////////////////////////

sound mouse_snd = <mousesnd.wav>;

//////////////////////////////////////////////////////////////////////////

function game_init();
function mouse_over();
function mainmenu_mouse();
function start_game();
function set_volume();
function set_resolution();
function quit_game();

///////////////////////////////////////////////////////////////////////////

panel main_pan // main panel
{
	bmap = main_bmp;
	layer = 20;
	pos_x = 220; // for now
	pos_y = 200; // for now
	button = 50, 65, new_bmp, new_bmp, new1_bmp, null, start_game, mouse_over;
	button = 50, 115, sound1_pcx, sound1_pcx, sound2_pcx, null, set_volume, mouse_over;	
	button = 50, 165, video1_pcx, video1_pcx, video2_pcx, null, set_resolution, mouse_over;	
	button = 50, 215, exit_bmp, exit_bmp, exit1_bmp, null, quit_game, mouse_over;	
	flags = d3d, overlay, refresh;	
}

panel sound_pan // sound panel
{
	bmap = sound_pcx;
	layer = 20;
	pos_x = 160; // for now
	pos_y = 240; // for now
	hslider = 60, 95, 200, slider_pcx, 0, 100, sound_vol;	
	flags = d3d, overlay, refresh;	
}

panel video_pan // video resolution panel
{
	bmap = video_pcx;
	layer = 20;
	pos_x = 160; // for now
	pos_y = 240; // for now
	hslider = 60, 95, 200, slider_pcx, 4, 8, video_value;	
	flags = d3d, overlay, refresh;	
}	

/////////////////////////////////////////////////////////////////////////

function main()
{
// set some common flags and variables
//	warn_level = 2;	// announce bad texture sizes and bad wdl code
	tex_share = on;	// map entities share their textures

// center the splash screen for non-640x480 resolutions, and display it
	splashscreen.pos_x = (screen_size.x - bmap_width(splashmap))/2;
	splashscreen.pos_y = (screen_size.y - bmap_height(splashmap))/2;
	splashscreen.visible = on;
// wait 3 frames (for triple buffering) until it is flipped to the foreground
	wait(1);

// now load the level
	level_load(level_str);
// freeze the game
	freeze_mode = 1;

// wait the required second, then switch the splashscreen off.
	sleep(1);
  	splashscreen.visible = off;
	bmap_purge(splashmap);	// remove splashscreen from video memory

// load some global variables, like sound volume
	load_status();

// display the initial message
	msg_show(mission_str,10);

// initialize lens flares when edition supports flares
ifdef CAPS_FLARE;
	lensflare_start();
endif;

// use the new 3rd person camera
	move_view_cap = 1;

// un-freeze the game
	freeze_mode = 0;

//	client_move();	// for a possible multiplayer game
// call further functions here...

    random_tunes();

    on_esc = null; 
    level_load (safelevel_wmb); 
    wait (2); 
    game_init(); // checks the Esc key state and changes the panels if needed 
    main_pan.visible = on; // show the main panel 
    mainmenu_mouse(); // and give me a cursor to play with 
    vec_set (camera.pos, nullvector); // move camera to the origin 
    while (game_started == 0) // we haven't pressed New yet 
    { 
        camera.pan += 0.3 * time; // rotate the camera gently 
        camera.tilt += 0.1 * time; 
        camera.roll += 0.05 * time; 
        wait (1); 
    } 
}


/////////////////////////////////////////////////////////////////
// The following definitions are for the pro edition window composer
// to define the start and exit window of the application.
WINDOW WINSTART
{
	TITLE			"3D GameStudio";
	SIZE			480,320;
	MODE			IMAGE;	//STANDARD;
	BG_COLOR		RGB(240,240,240);
	FRAME			FTYP1,0,0,480,320;
//	BUTTON		BUTTON_START,SYS_DEFAULT,"Start",400,288,72,24;
	BUTTON		BUTTON_QUIT,SYS_DEFAULT,"Abort",400,288,72,24;
	TEXT_STDOUT	"Arial",RGB(0,0,0),10,10,460,280;
}

/* no exit window at all..
WINDOW WINEND
{
	TITLE			"Finished";
	SIZE			540,320;
	MODE	 		STANDARD;
	BG_COLOR		RGB(0,0,0);
	TEXT_STDOUT	"",RGB(255,40,40),10,20,520,270;

	SET FONT		"",RGB(0,255,255);
	TEXT			"Any key to exit",10,270;
}*/

/////////////////////////////////////////////////////////////////
//INCLUDE <debug.wdl>;
//////////////////////////////////////////////////////////////////////////

action eye_checker // attached to the sprite
{
	my.oriented = on;
}

function mouse_over() // is executed when we are over the menu buttons
{
	play_sound (mouse_snd, 70);
}	

function mainmenu_mouse () 
{ 
    mouse_mode = 2; 
    mouse_map = cursor_bmp; 
    while (game_started == 0) 
    { 
        mouse_pos.x = pointer.x; 
        mouse_pos.y = pointer.y; 
        wait (1); 
    } 
} 

function start_game() 
{ 
	main_pan.visible = off; 
	game_started = 1; 
	mouse_mode = 0; 
	level_load (senior_product_wmb); 
	wait (2); 
	camera.z = 220; 
	camera.tilt = -90; 
} 

function set_volume() // shows the sound panel
{
	main_pan.visible = off;
	sound_pan.visible = on;
}

function set_resolution() // shows the video panel
{
	main_pan.visible = off;
	video_pan.visible = on;
}

function quit_game()
{
	exit;
}

function game_init() // checks the Esc state and changes the panels accordingly
{
	while (1)
	{
		// first of all, calculate pos_x and pos_y for all the panels
		// to make sure that they are centered at any resolution
		main_pan.pos_x = (screen_size.x - bmap_width(main_bmp)) / 2;
		main_pan.pos_y = (screen_size.y - bmap_height(main_bmp)) / 2;
		sound_pan.pos_x = (screen_size.x - bmap_width(sound_pcx)) / 2;
		sound_pan.pos_y = (screen_size.y - bmap_height(sound_pcx)) / 2;
		video_pan.pos_x = (screen_size.x - bmap_width(video_pcx)) / 2;
		video_pan.pos_y = (screen_size.y - bmap_height(video_pcx)) / 2;
		if (key_esc == 1)
		{
			while (key_esc == 1) {wait (1);} // wait for release
			if (main_pan.visible == on) 
			{
				freeze_mode = 0;	//let the player and everything move again
				main_pan.visible = off;
				mouse_mode = 0; // hide the cursor
			}
			else // main_pan isn't visible
			{
				freeze_mode = 1;	//you just about turned on the menu, freeze the game
				if (sound_pan.visible == off && video_pan.visible == off)
				{
					main_pan.visible = on;
					game_started = 0;	// stop the game
					mainmenu_mouse(); // show the cursor
				}
			}
			if (sound_pan.visible == on)
			{
				sound_pan.visible = off;
				main_pan.visible = on;	
			}
			if (video_pan.visible == on)
			{
				video_pan.visible = off;
				main_pan.visible = on;	
				if (int (video_value != video_mode)) // resolution has changed
				{
					switch_video (video_value, 16, 1);
				}
			}
		}
		wait (1);
	}			
} 

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