Vst system link errors
In my experience, reasons for seeing errors in VST System Link (VSL) are usually due to the digital signal path (audio and/or data) not being routed properly within the System Link dialog box. If for example, you're using s/pdif between two ASIO 2 compatible audio cards properly (OUT of card #1, to IN of card #2 - then OUT of card #2 back IN of card #1), you also have to set your s/pdif System Link I/O channels in the dialog box to the 'same' channel...If say your options are s/pdif channels 9 & 10 (or whatever they are), you set the I/O's of both computers VSL dialog boxes to either channel 9, or all to channel 10. You of course need to route your digital audio properly within your audio interface! (see your cards documentation on that).
You can test if it's routed properly by 'listening' to audio from each computer, from the other...meaning listen at computer 2, from computer 2 & visa-versa. If you hear the audio thhen it should be correct. But in order to 'hear' the audio (besides proper settings in the VSL dialog box) you must 'also' set those digital audio s/pdif channels within Cubase's VST Inputs/connections. But in 'this case', you use both channels 9 & 10 for your Inputs/Outputs. They also say it's best to place your VSL digital audio channels at the top of the Inputs/Outputs list.
You do not need to keep the s/pdif channels in the VST Inputs/connections to make System Link work however, that's if you need to 'listen' or if you need to test whether it's routed properly.
Getting VST System Link working can seem complicated at 1st, but once you understand, and have it working, you realize it's actually not that hard at all. I recommend taking notes, and writing down what you did to make it work, as you go along the way. That has come in very handy when I need to use it again. Also READ your PDF manual and follow that to the letter!