**This issue has been resolved in ArcGIS
10 Service Pack 1**
In ArcGIS 10, when attempting to correct certain topology errors using the built-in fixes, the fix may not work or the following error message may be displayed:
"Failed to create new feature."
This scenario is most commonly encountered with the 'Must Not Have Gaps' topology rule and the 'Create Feature' fix, which may produce the error. This issue can also occur with other topology rules, such as the 'Merge' fix for 'Must Not Have Pseudonodes' or the 'Simplify' fix for 'Must Not Self-Intersect' or 'Must Not Self-Overlap'.
This is a known issue at ArcGIS Desktop 10 that has been addressed in
ArcGIS 10 (Desktop, Engine, Server) Service Pack 1.