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This occurs when the catalog believes that the Pre is in a "strange" version of the OS. Developers run into it with pre-release versions. We saw it with early copies of 1.3.1, until the App Catalog was told that 1.3.1 was a normal version. There is a "default" view of the catalog for each region and right now it looks like it is 317 apps for Sprint US. (Any developer on pre-release gets this.)
In most cases the Partial Erase is the best bet to reset things. There have only been a few cases where this doesn't correct it, from what I've heard. I think all of these were once flashed to pre-release versions of WebOS.
Partial Erase SHOULD not erase USB, but it is always a good idea to have a backup.
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