If a project is open from another machine, a lock file is created for source control of the project. When the project is closed this lock file should be deleted, but if it does not get deleted, the above message appears.
The hang experienced above has been resolved in ISE 8.1i, and an update of the Xilinx Design Tools is recommended.
If this is not an option, a work-around for this issue is to manually delete the ".ise.lock" file in the project folder. Additionally, if there is a _projnav directory, this should also be deleted.
Finally, to reset Project Navigator back to its original settings, delete the ISE registry key by typing regedit at a command prompt, go to HKEY_CURRENT_USER -> Software -> Xilinx -> ISE, and delete the ISE folder.