to open it in illustrator you do not need PDF compatibility.
saving without PDF compatibility is a good way to get yoursefl out of a jam, but it is probably not a good idea to skip it for the long term simply because it isn't working. It should work, the fact that it does not work means something is wrong. Usually you either have a corrupt element in your file, or there is something wrong on your system (hard drive, permissions, etc.)
First thing i would try is trouble-shooting fonts.
I ask because I've had Illustrator crash several times while saving (GRRRR) and when I attempt to open the file I was working on before the crash, I get a dialog box that pops-up and says the file is damaged and that the PDF something is unreadable.
Could it be that the PDF part of the file is causing some major problems with the save function... and that I don't need it???