it means that the system couldn't read the file.
Mandriva's installer needs hdlist.cz, it is the file that contains the list of packages available for install from the disk.
make sure the disk is clean and doesn't have any marks on it, then try again.
if you still get the error, get a new copy of the disk.
a side note, upgrading from 2006 to 2007 is slower and more prone to errors than just installing 2007.
[ if you made /home a separate parition, as is recommnded, you can install 2007 without losing the data. Data is stored in the user directory in /home. ]