Their is a post on rootzwikki about this by darkstarsinner. Mine does the same thing. I was able to fix it once ny un-installing all my apps ads then going into settings >applications > uninstall updates to market and reboot your phone. I am not sure what is causing the issue but its definatly not a hardware issue.
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My market is now messing up. When i launch the market server error shows. I just rebooted my phone because i tried to downloaded two different apps and got an error after a download attempt. Wonder if it is a problem on googles server.
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I know this is an old thread but i did a factory reset and wiped everything but my sd card and I now have my market fully functional. Not sure what was causing the issue but this seems to have fixed it.
My suggestion is to make a nandroid backup afterwards so you can have a restore point if it happens again.
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