This error will show up also if you try to restore a T-LOG backup that was done after a TRUNCATE_ONLY command. In other words if you follow this sequence:

1. FULL BACKUP

2. BACKUP LOG [DB_NAME] WITH TRUNCATE_ONLY

3. TRANSACTION LOG BACKUP

then your transaction log from the 3rd step is not restorable. This is possible on a SQL 2000 version only! SQL 2005 won't even allow you to do the 3rd step untill you do a full backup after your TRUNCATE_ONLY, to start a new LSN sequence.