Hi Malle,
Sorry to take so long to respond to your post. By the looks of the error message you are getting, the problem is with the spatial reference for one of your data layers.The best thing to do is to go back and check the projection/coordinate system for your data frame, and for each of the data layers that you are using, and make sure that these are all the same, and that they are set to the one you want to use for your KDEs. You can do this in ArcGIS by bringing up the data frame properties and the data layer properties by right clicking on their names (one at a time) in the TABLE OF CONTENTS window and selecting PROPERTIES. If any of your data layers are not in the correct projection/coordinate system, then use the PROJECT tool to transform them into the projection/coordinate system that you want to use.
If you've double-checked all of this, and you are using the same projection/coordinate system for everything, and you're still getting this error message, then try repeating the KDE creation, but use a different folder to save the KDE in. Specifically, make sure that none of the folder names in the address have any spaces in the name (it looks like you have a space in the name of your folder C:/GIS Work, and this will cause problems with some tools - for GIS, it is best to get into the habit of always using an _ (underscore) rather than a space in file and folder names.
Finally, check that the point data layer you are using to generate your KDE has been loaded correctly by right clicking on its name in the TABLE OF CONTENTS window, and selecting OPEN ATTRIBUTE TABLE. If you have created this point data layer from a spreadsheet, .CSV or .TXT file, then you may need to specifically save it as a shapefile before you can use it to make your KDE layer (this is done by right-clicking on the point data layer's name in the TABLE OF CONTENTS window and selecting DATA> EXPORT DATA (I think this is the way round it is).
Once you've run through all these checks, if you're still having this problem, then post back on this thread, and I'll see what else I can suggest.
All the best,
Colin