Be sure you are editing the kryptohash.conf in the right location.  

If you didn't pick a custom directory the first time you executed kryptohash-qt.exe, Windows places all the files in C:\Users\{YourUserName}\AppData\Roaming\Kryptohash\

Edit the kryptohash.conf file and ensure you to have these lines:

server=1
rpcuser={myRPCusername}
rpcpassword={myRPCpassword}
rpcconnect=127.0.0.1

Then, restart the wallet.

Create a solo.bat file inside the cgminer-khc folder and add these lines:

setx GPU_MAX_ALLOC_PERCENT 100
setx GPU_USE_SYNC_OBJECTS 1
cgminer --kryptohash --cl-opt-disable -o http://127.0.0.1:38912 -u {myRPCusername} -p {myRPCpassword} --shaders {Num_shaders_in_my_GPU} --shaders-mul 8 --expiry 10


Edit:  That error could also happen if the Wallet is still synchronizing with the network.   Try the 'getwork' command from the Wallet's Debug console to confirm.