First it does not appear that you are including MDL.MKI (the default build rules). Next if you do not have VisualStudio 2005 then you need to add the command line define BUILD_USING_NOTOOLSET (and do some searching of these news groups for the others that have seen this same issue). And finally it looks like you are only building MDL pseudo code which cannot use the MicroStationAPI since it is for C++ code only.
HTH,