My sister has a Win7 64bit machine and sometimes when she tries to play an mp3 file windows stalls with the blue circle rotating and after 20sec it shows the following popup:
What could possibly be the cause of this?
How do I debug it?
This looks to be a Windows Media Player problem, perhaps due to other conflicting software or due to a bad install.
"Server execution failed" is an error specific to Windows Media Player (or perhaps other programs that "wrap WMP, meaning they use the core playback engine of WMP with their own interface). It has to do with Windows services, which are being referred to as a "server" here, being unavailable (disabled, stopped, etc.)
There are detailed howto steps on uninstalling/reinstalling WMP along with other possible methods to resolve, from an official Microsoft employee, at Microsoft Answers.