Just as an aside in case someone else comes across this thread...some (though not all) re-releases of SH3 will show v1.4 in the bottom corner, but are actually patched to v1.4b. For whatever reason the "b" was dropped off. I spent half an hour trying to install a patch I already had, and got that same exact error. One way to double-check is to go to your SH3 folder, and check the version number on the sh3.exe file. If it's 1.4.0.1, then you're good to go.
Chances are very good that if you've just bought the game recently, it's already patched to v1.4b.