Reply...
Easy Flier,
I knew I should have answered this thread before going to bed last night.

You're essentially getting a crash-course in CFS2 quirkiness here. Let me first assure you that these problems are not insurmountable, nor are they atypical. So let's start with your error.
The "failure to initialize the databases" error is a VERY common CFS2 problem. In short, CFS2 has problems when you approach or reach 100 aircraft. (There's some variance on that number) This does not just mean aircraft folders...each skin besides the one in the folder counts as well.
So if you have one aircraft which contains three textures, bingo! It counts
three times.
Okay so far?
(This can also happen if you cross the 1,550-ish mark with .dp files in your OBJECTS_DP folder, but that's irrelevant right now)
So let's get down to it...how the h*ll do I fix this?
1) Figure out the trigger that is causing this. (For example...aircraft? objects?)
2) Depending on the operating system, find your "Windows Search" feature and open it, and target your CFS2 installation folder.
3) Run it
twice, looking for these
two file types...
3a) Filelist.dat
3b) .cdp
Delete all of these files which come up for each type.
Then, replace your quick combat file with one from a "clean" install.
From this point forward, if you decide to modify the .qcb file, (For example, say you replace the Japanese aircraft with German types) always have
two files in there.
Have your main .qcb file there, then make another copy, rename this file with the extension ".bak," so that in case you have this problem again, you already have a "clean" quick combat (.qcb) file ready (once you rename the backup file) in case your install goes "tits-up" again.
Once you complete this, fire up CFS2 and let the filelist.dat files regenerate. Try free flight. If you get that message again, keep troubleshooting and repeat the procedure.
Also, here is a handy tool for editing the quick combat file:
http://www.sim-outhouse.com/sohforums/local_links.php?action=jump&catid=49&id=17975