I've tried using App2SD but I've also done the exact same thing as you. Settings --> Applications--> Manage Applications (select an app) --> Move to SD card. Both methods throw the same error. (I suspect that the App2SD just uses the built in functionality because the interface is identical)
So you're saying now that it goes to the EXTERNAL SD? IronSingh says it goes to the Internal SD card.
Do we have our terminology confused?
In my mind there are three types of memory in the captivate:
Internal Memory (basically the system partition)
Internal SD (essentially a logical partition of the built in memory)
External SD (an optional inserted micro SD card which I do not currently have)
If as IronSingh says "move to SD" should go to the Internal SD memory than it means I have a problem with my phone. If as you say it goes to the external SD then the error I'm getting is understandable and normal because I don't have an external SD card.
See the confusion?