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This is probably THE most common failure among digital cameras. There's a halfway chance of fixing it yourself, described here: http://camerarepair.blogspot.com/2007/12/fixing-lens-error-on-digital-camera.html
Mine was doing that when I sent it in to have the lens/screen problem repaired. The camera was part of a class action lawsuit and the repair was free and fast via Sony, but since then I've had issues with power. The camera won't stay on!
I just had this same problem. The lens came out all the way, but then make a crazy beeping and clunking sound. The LCD would not come on. I took off the casing, and the clunking sound was coming from the mechanism that has gears in it, and seems to be what makes the lens come out. I tried blowing canned air into it, and banged it around, but nothing worked. Then I pulled a little too hard on the lens and accidently pulled the whole lens off. Oops. Looks like a new camera for me. So my solution is: don't pull on the lens.