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When creating a new layer, if the spatial index grid size is specified to be less than or equal to the value of the X offset, an error appears:
"The specified coordinate exceeds the valid coordinate range."
This is a known issue with the 8.1 Java application programming interface (API).
This is a known issue without a work-around at ArcSDE 8.1. Only spatial index grid sizes larger than the X offset value can be used.