Got it working. This required a visit to Atari Age to understand what was going on.
There are some protections in A800 disks that lr-Atari800 can't get around but Altarri can. This was one of them, hence the odd error message. The emulator reads the disk, but it's not jumping over the sector of copy protection.
I was graciously given a "newer" version of CA that had the protections removed.