You have problems right from the beginning:
ln: creating symbolic link `README.mod_sql' to `../README.mod_sql': Operation not permitted
./configure: line 1475: cd: /mnt/windows/software: No such file or directory
Are you perhaps building this in a readonly vfat windows location? Try it on an ext3 or other fully functional linux partition.
The error itself occurs in the configure script in a forloop round about line 16584 (I am using proftpd-1.2.9rc3, but the 1475 line appears the same, so the script may not have changed too much. There is a variable $ac_addl_modules which equals for me mod_cap.o. With srcdir=., the forloop assigns mod_cap.o to $module. The command "src=`echo "$module" | sed -e 's/\.o$//'`.c;" makes src=mod_cap.c . The configure script then tests to see if the src file exists " if test -f $srcdir/modules/$src -o -f $srcdir/contrib/$src; then"; if it does not it does the following "echo "source file '$srcdir/modules/$src' cannot be found -- aborting"", which is your error.
Actually, having written this, I am guessing besides not having permissions to write in ./contrib (there is a cd contrib on line 1473 of configure), you also may have a space in the path to the top of your directory tree. Note that it said there is no directory /mnt/windows/software ... if you were trying to build in say "/mnt/windows/software linux/proftpd-1.2", line 1475 cd $olddir would fail. $olddir would equal the right location, but cd would just read up to the space. This you might beable to fix by changing the line to cd "$olddir", but you still have the problems of the potentially readonly filesystem. I tested it by commenting out line 1475, and the configure script works fine until it reaches the point of your final error.
Well, let me know if I guessed right and what your results are. Thanks.