Looks like it's trying to find the C preprocessor in the wrong place. On my system (NetBSD 4.0.1) it's in /usr/bin/cpp. Your error message says it's looking in /lib/cpp. Unfortunately other than making sure that /usr/bin is in your PATH variable (check your .profile and/or .cshrc file), I don't know how to help you.
I guess a workaround is to delete whatever is in /lib/cpp and make a symlink in there to /usr/bin/cpp.
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