The code that generates this error message is located in 3 places.
\Classes\InventModelType\validateItemTypeisNotService()
\Classes\InventModelType\validateModelGroupHasNoService()
\Classes\InventModelType_StdCost\validateModelGroupHasNoService_RU()
Put a breakpoint in each of these methods on the return checkFailed(..) statement and cause the error to occur so you can inspect the fields on the found InventTable record. This will tell you exactly what is going on. What the code checks for is very simple. It's possible, for example, that you have a Released product where the type is Service but the Product is type Item, and you would only see Item in the Released products form and not directly see the field conditions causing the error in the UI.