Error in Proteus simulation using ATmega16 with Arduino IDE
Apparently your program tries to write to SRAM in a location that the simulation is convinced that no RAM exists. Are you sure you have configured the right device during compile and during simulation? An ATmega16 has 1kB of RAM and  1kB equals 0x400 so writing to 0x08FE is well beyond its bounds.

If you check the datasheet at page 331 "Register Summary", you'll see registers defined up to 0x5F, which would explain the 0x60 offset in your error message memory size 0x0460.

Check the correct target device in the Arduino IDE (Tools &rarr;Board)?