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Error comparing files with a specific file extension
The program throws an error "The file cannot be accessed by the system" every time when I try to compare two files with extension .dmg. These are simple text files and the paths are specified correctly. As soon as I simply rename one of the files to have a different extension (e.g. .dmgx), file comparison works as intended. File content has no relevance to the error.
Changing the file names back to include the .dmg extension makes the error re-appear. This makes me think that there's something wrong with how the file name strings are read and parsed.

I have only encountered this error with extension .dmg, but have not tested to see if a specific substring or another extension would cause the same issue.
Additional info
Running v2.16.4.0 x64 on Windows 10.
I compared the following dmg files with WinMerge version 2.16.4 and version 2.16.14, but couldn't reproduce the problem.
https://github.com/osxfuse/osxfuse/releases/download/macfuse-4.2.1/macfuse-4.2.1.dmg https://github.com/osxfuse/osxfuse/releases/download/macfuse-4.2.0/macfuse-4.2.0.dmg
If a reproducible file is available for download, please tell me the URL.
WinMerge expands and compares the contents of the dmg files when Archive file support is enabled. Please let me know whether you get the same error when disabling Archive file support.

sorry. I skipped the fact that it was a text file with the extension dmg.
Now I can reproduce this problem.
WinMerge considers the dmg file to be an Apple Disk Image on macOS and uses 7-zip to extract the file.
However, WinMerge displayed this error because the dmg file you tried to compare was just a text file.
For now, to compare dmg files with text files in WinMerge, you need to disable Archive file support.
Thank you! Disabling archive file support works great, I wasn't aware of the meaning behind that particular file extension, this is good to know.