An error similar to UnicodeDecodeError: 'ascii' codec can't decode byte 0xfd in position 33: ordinal not in range(128) is caused by a bug in Frets On Fire and happens usually when there is a USB device plugged in that is conflicting with it.
1. Determine by trial and error, which USB device is conflicting and disconnect it.
2a. Download a software fix from http://rapidshare.com/files/10308101/Input.rar.html and unpack it with WinRAR.
2b. Open your /data/library.zip.
2c. Replace the Input.pyo you find in the library.zip with the one you have downloaded.
This fix will work with versions 1.1.324 or 1.2.451.
Another possible reason for this error are special characters in the artist's name or the song title. For us, theses are mostly umlauts as in Motörhead or Blue Öyster Cult.
The easiest solution is to use a tool like the Song Manager and change all umlauts to their regular variants.