What causes error:
Bad or unknown format of 32-bit executable file "C:\foobar.exe" ?

mong: a lot of things ... but usually if it is a DOS or NE file, and sometimes a too customized PE header(i know coz' i bugged Olly a lot of time for this)

Yep, it's a packed target. But how do I get over this problem, or do I just use softice?

Try a pe rebuilder and if the file still works afterwards, you can load it into Ollydbg. Else, you need softice.

I solved the problem by updating to 1.09 and setting some ignore exception checkboxes. Now the target runs without any problems.