You need to differentiate between a bump map and a normal map. A bump map is greyscale and only provides detail for a single axis (height). A normal map is RGB and provides detail for all three axes (X, Y, Z) - one channel (i.e. one greyscale map) for each axis. These typically look blue, what is known as a tangent-space normal (as you can see in my earlier posts). Unfortunately, Odyssey refers to both types as bump maps which is technically correct, albeit extremely unhelpful.
The error you are getting only occurs with normal maps. Normal maps are used in conjunction with the tangentspace flag in the model. If the model has the tangentspace flag enabled then you must supply an appropriate tangent-space normal map. For Odyssey, these must be RGBA, having a white alpha channel, and saved as a DXT5 TPC.
As far as TXI data goes, both types use the same semantics. The diffuse map requires:
bumpmaptexture xyz
where XYZ is the name of the associated bump/normal map.
The bump/normal map requires:
isbumpmap 1
at a minimum. It can also optionally have any of the following:
isdiffusebumpmap 1
isspecularbumpmap 1
bumpmapscaling 3
The first two are set to either 0 or 1 (false or true, respectively). A diffuse bump applies to the diffuse texture, a specular bump applies to the envmap (when used in conjunction with bumpyshinytexture in the diffuse). Typically you'll want to specify both of these and set them to 1 (I believe otherwise diffuse defaults to 0).
The scaling value is an integer from 1 to an unknown maximum, but I'd suggest 10 would be the upper bound. This controls the intensity of the bump. Since Odyssey's implementation is pretty poor, you can try adjusting this number to values above 1 to get more noticeable results.