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This error occurs when attempting to add a raster dataset into ArcMap:
"Invalid raster dataset, failed to create raster layer"
This other error occurs when trying to preview the same raster dataset in ArcCatalog:
"The selection cannot be displayed in the current view"
If you are able to use the file in ArcInfo Workstation or ArcView 3.x, the problem may be a corrupt or conflecting auxiliary file (*.aux). The offending .aux file may be in the same location as the raster, or it may be in the raster proxy location. The auxiliary file is a binary file that stores various types of information, including statistics and spatial referencing.
Prior to executing this procedure, ensure that all hidden files and folders and file extensions are showing.
If the new raster doesn't return this error, and it is necessary to maintain the original raster in it's original location, delete or rename the .aux file. It is also advisable to inspect the raster proxy folder for any conflicting or corrupt .aux files for this raster.