(If that fails). Download SD Formatter and re-format your SD Card.
Re-move your files from the backup, back onto SD Card.
(This is assuming that your SD Card is fried. Try moving some APKs to the USB Storage to see if its really a problem or a just a market error). You may also try clearing the Market cache.
Hold Home -> App Manager -> Find Market -> Clear Cache
I did the above and cleared the cache and I'm still running into this problem. Strangely enough, I am able to update any packages that were already installed via the Market but on this particular application, it doesn't work and gives me the above error