NaturallySpeaking 7 (as well as prior versions) has multiple situations where it reports "serious" errors or an "SDAPI" problem.
General procedures to deal with these problems include:
1. Make a copy of your dragon.log file that is in the (default 7.0) C:\Program Files\ScanSoft\NaturallySpeaking or (default 7.2 or 7.3) C:\Documents and Settings\All Users\Application Data\ScanSoft\NaturallySpeaking directory. This is for tracking what is causing the problem. On 7.2 and 7.3, you can also go to Start, Programs, Dragon NaturallySpeaking Tools, Find Dragon NaturallySpeaking Log to find this file.
2. If you do not have a recent backup of your speech files, make one. Copy the C:\Program Files\ScanSoft\NaturallySpeaking\Users directory elsewhere on your hard drive or a backup device.
3.. Boot your system.
4. Try again, these errors have been known to go away after a reboot.
5. If you have multiple users, try opening a different user (if you can get that far).
6. With Dragon not running, switch the "current" and the "backup" directories for a user with the problem. To do this, use "My Computer" or Windows Explorer to find the C:\Program Files\ScanSoft\NaturallySpeaking\Users\<your user name> directory. You should see a "current" and a "backup" folder.
Right-click on "current", select the Rename option, and rename the "current" folder to "old-current".
Right-click on "backup", select the Rename option, and rename the "backup" folder to "current".
Restart Dragon -- this has solved many such problems.
7. If still stuck, do a "repair" installation of the program. On Windows-XP, go to Start, Control Panel, Add or Remove Programs. Highlight NaturallySpeaking 7, and click "Change/Remove." Click "Repair". This will end up needing the NaturallySpeaking CD.
If these steps do not resolve the problem, the next steps I would generally suggest would be an uninstall and reinstall of NaturallySpeaking. But hopefully that step won't be needed often.