I am totally perplexed by this bug.  It appears to be a bug in Delphi.
 I was wondering if anyone has some kind of workaround for this.  The
following is my code and I have marked the line that causes the access
violation:

  try
    AssignFile(FromFile, src);
    AssignFile(ToFile, dest);
    Reset(FromFile);
    Rewrite(ToFile);
    try
      // Make sure file is greater than 10 bytes in length
      if (m_nTotal > 10) then begin
        while not Eof(FromFile) do begin
          ReadLn(FromFile, sLine);
          // update progress bar
          Inc(m_nComplete, Length(sLine) + 2);
          Synchronize(UpdateProgress);
          // Check for special case Empty Lines
          if sLine = '' then WriteLn(ToFile, sLine)
          else begin
            // Process first column codes
            case sLine[1] of
              '0':
                begin
                  if (sPrevLine <> '') then WriteLn(ToFile,
TrimRight(sPrevLine));
                  WriteLn(ToFile, '');
                  sPrevLine := Copy(sLine, 2, Length(sLine) - 1);
                end;
              '-':
                begin
                  if (sPrevLine <> '') then WriteLn(ToFile,
TrimRight(sPrevLine));
                  WriteLn(ToFile, #13#10);
                  sPrevLine := Copy(sLine, 2, Length(sLine) - 1);
                end;
              '+':
                begin
                  if (sPrevLine <> '') then begin
                    sLine := Copy(sLine, 2, Length(sLine) - 1);
                    sLine := TrimRight(sLine);
                    _InsertOverwrite(sLine, sPrevLine);
                  end;
                end;
              '1':
                begin
                  if (sPrevLine <> '') then WriteLn(ToFile,
TrimRight(sPrevLine));
                  Write(ToFile, #12);
                  sPrevLine := Copy(sLine, 2, Length(sLine) - 1);
                end;
              else
                begin
                  if (sPrevLine <> '') then WriteLn(ToFile,
TrimRight(sPrevLine));
                  sPrevLine := Copy(sLine, 2, Length(sLine) - 1);
                end;
            end; {case}
          end; {else}
        end; {while}
        // Write last line to file
        if (sPrevLine <> '') then
          WriteLn(ToFile, TrimRight(sPrevLine));  // <-- ACCESS
VIOLATION
      end
      else bFileTooSmall := True;
    finally
      // Close source and destination files
      CloseFile(FromFile);
      CloseFile(ToFile);
    end; {try}
  except
    bFileMoved := False;
  end; {try}

You will notice that there are several calls to
WriteLn(ToFile, TrimRight(sPrevLine))
in the while loop.  sPrevLine is declared in the var section of this
particular function as a String.

Keep in mind that this is running in a separate thread.  

Is there any known issues with Delphi Strings and threads?

I am running Delphi6 Enterprise with Update 2, so at the time I'm
writing this, I have the latest greatest from Borland.

Also, I should note that stepping into the offensive line of code
brings me to the TrimRight code, and it died at the call to the Copy
function from the System unit.