Apply the same again and try the defragmenter after rebooting your system. If it still does not work, make sure that you have more than 15% free disk space - less than that you cannot defragment as it needs place to move and shift files. If that is not the cause you may look in on how your Virtual Memory has been set. Make sure it is set to " let windows manage memory or set it to atleast 2 times the installed RAM. After it works then return it to the default value of about "1.5 x Installed RAM". If you don't know how to set Virtual Memory (also Paging File) then look in here: http://www.theeldergeek.com/locating_the_page_file.htm
Now if that also does not help look in this article: http://www.andreasroom.com/blog/archive/20.../18/defrag.aspx
Read this from the very start and go on reading the returned posts as almost all of these contain a different solutions which solved their problems with the disk defragmenter. Forget Microsoft, they have no solution for it as they too depend on their supplier for these services which is the maker of Diskeeper!
If you still have problems, post back and I am sure there is a solution for it. If you need to defrag real bad, simply download a 30 day trial version of TuneUp 2008 and let that do it for you till you find a solution to fix it.