I use cab maker to create the cab files easily:
http://www.tonysfreeware.com/download.htm

I learned that you need to be very careful to avoid conflicts with IDs already used in Windows SharePoint Services. It is suggested to use UNIQUE values greater than 10,000 for the ID attribute.

In my case my XML looked like this:

<?xml version="1.0" encoding="utf-8"?>
<Templates xmlns:ows="Microsoft SharePoint">
<Template Name="SAMPLE" ID="10001">
<Configuration ID="0" Title="Sample Site" Hidden="FALSE" ImageUrl="/_layouts/images/stsprev.png" Description="Blah blah blah." DisplayCategory="Custom Site Definitions" > </Configuration>
</Template>
</Templates>

By changing the ID to 10004 the problem went away. I didn't realize, or had forgotten, that I had used the ID of 10001 previously for another template. My correct XML was:

<?xml version="1.0" encoding="utf-8"?>
<Templates xmlns:ows="Microsoft SharePoint">
<Template Name="SAMPLE" ID="10004">
<Configuration ID="0" Title="Sample Site" Hidden="FALSE" ImageUrl="/_layouts/images/stsprev.png" Description="Blah blah blah." DisplayCategory="Custom Site Definitions" > </Configuration>
</Template>
</Templates>

The next template I create will have an ID of 10005, the one after that 10006, etc…….

Just stumbled across the same problem, found a workaround though. The following outlines the process of removing the features WSS does not support.

1) Rename the stp to a cab file, extract the files.
2) Open manifest.xml
3) Remove the nodes WorkflowAssociations
4) Export a site template from the WSS site, extract mainfest.xml and copy the WebFeatures element (and its children) into the MOSS manifest.xml file (by replacing the existing).
5) Package the item up again, and upload to the site.

The majority of elements work, you may have some qwirks in views not displaying. I've found that resaving these items fixes the problem.

Hope this helps.