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Vim E303: Unable to open swap file for "[No Name]", recovery impossible

On a new installation of GVim (in Windows 7), I ran into the following curious error whenever I tried to open a new document for editing:
Vim E303: Unable to open swap file for "[No Name]", recovery impossible

According to friendly chap on IRC, this is caused by a temporary directory bug and that it can be fixed by adding the following directive to the _vimrc file:
set directory=.,$TEMP

That's all it took to fix this issue for me - hope this helps!