Well, I was searching the internet and found a guide for similar problem in Canon cameras (though most cameras suffer from this).
http://blogs.yucs.org/~dwallach/2004/08/canon_e18_error_repair_instruc.html
One thing attracted my attention:
Version #1:
This error occurs when the lens is "stuck" or not extending "straight". The error can happen in 3 ways: either when the lens wont "come out", or "comes out" and then retracts, or does not retract at all. 1) If the lens doesn't extend at all or it extends, but then retracts again, do as follow: Turn the camera off. Place the camera on it's back with the lens facing up and have a look at the "spacing" between the lens and the lens housing. You'll probably notice that the gap is NOT EVEN all the way around. To fix this, simply -VERY GENTLY- press down on the side where the gap is the biggest. You will hear a "click" as it pops back in place. Try powering it back on. 2) If the lens is extended all the time and won't retract at all, do as follow: Turn the camera off. Take the camera in one hand and with the other gently, in turn, take the two part of the lens and gently move it round in a circular movement. Do so with both sections of the lens. You will hear a "click" as it pops back in place. Power the camera on.
I looked - and noticed that the gap indeed was NOT EVEN all the way around. Pressing it with the camera off did not help much (I was afraid to damage it), but when I turned the camera on and the lens was struggling to extend, I pushed gently to one side and it opened and turned on! However, when I turned it off and tried to turn it on again, the problem returned. It was easily fixed (temporarily) in thye same was, by gently pushing it.
Anyway, now I know at least what the problem is - it is strictly mechanical. Will play around with the lens, trying to align it and possibly clean off dust or sand, if any.
Hope this will help someone with the same problem - I noticed there are many questions here about stuck or frozen shutters/lenses.
Y.M.R.
Y.M.R., September 2006