When small Hoop is on machine and you have the design set, even at the smallest setting for letters the machine want change the hoop size to small and keep it there.

SOURCE: I have a futura 150

Follow the steps that the futura website recommends in their FAQ. (Turn on machine, attach small hoop, and then start Futura software and make sure small hoop is recognized on the computer.) If this is a design that you have modified in any way (ie- added font, or merged designs, etc...) or a design that you have created your self you need to REDO and resave the design on the small hoop now that the computer is recognizing it. I had a name drop design and I added the name and saved it- all in the large hoop and had the same error message although I followed the steps for recognizing the small hoop and it seemed to work until I actually started embroidering. When I redid the design under the small hoop, it worked fine!

SOURCE: Futura CE-200 Stops in middle of design and says wrong hoop size

Dear cjnations
Firstly we must all remember that the CE200 is a very particular machine and requires that you follow certain procedures in order for it to run smoothly. When using the small hoop, firstly you must make sure that the small hoop is selected on the screen by going to Tools, Select Hoop & clicking on small frame. Once this has been done and the design selected, you must then attach the small hoop before sending the design to the machine. If you attach the hoop after sending the design, the machine will give you the error message.
Good Luck!