Since the beta of EA/DICE's Battlefield Bad Company 2, forums have had a myriad of posts with game problems, with this symptom included in the posts. Since retail release of the game, and the subsequent release of Medal of Honor by the same publisher/developer teams, the same has been seen for the latter game.
Specifically, the event log entry in the windows system log is:
Event 36888, Schannel
The following fatal alert was generated: 10. The internal error state is 10.
When I first saw the error myself, I recognized it from my network programming days as an informational error, indicating some kind of barf-o-rama on the server side of a secure connection handshake. Unlike most of the other Schannel event IDs, this particular one seems to remain undocumented. Nonetheless, the Info opcode and 10 / 10 Alert Description and Error State hint strongly at it being server side.
Since it seemed to have no material effect on the playability of the game(s), my interest in investigating it stopped there. A recent poster, however, indicated that disabling their AV (Trend) caused the apparently related game issues to be remedied. While it appears that the game itself runs correcly despite encountering the Schannel error, it may be that some A/V that muck with everything on the wire might take drastic action in the face of it. Strange if some do, but plausible.
In any case, barring some other application / utility causing problems (e.g., said A/V), the error itself can be safely ignored. If it really bothers you, you can change the logging level via a registry change by modifying (or adding if needed) the key:
DWORD value EventLogging with a value of 0 will eliminate such event log messages. Note that current versions of windows seem to be more voluble for these errors - on older (e.g. XP), the error may occur without a log entry being generated.
I became interested again in this event / error recently while tracing the traffic activity of the game debugging a separate issue. Both games are built on the same engine / network infrastructure, so it is not surprising they share the same frailties.
From an outsider's view (since I have no access to the game source code, nor the EA master or game servers, my view must be the result of probing and testing theories, using debuggers and traffic sniffers), the network infrastructure for these games is a bit of a wreck. In the same way one might surmise their neighbor is a slob from observations of the trash bags thrown on their front lawn, the mishmash of connections and traffic these games generate is appalling. The possibilities of problems due to one piece failing or being unavailable are surely a source of grief for many attempting to play these games online.
If this system was designed this way from scratch, someone should be publicly whipped with a length Ethernet cable. If it is the result of 'evolution' of features and functionality by adding servers to the 'master' pool, the time has come perhaps for EA to rethink the infrastructure and rebuild it from scratch.
In any case, the Schannel error in these games appears to be generated by an improperly configured EA server that provides them with hardware information à la Steam's hardware survey.
Another way to eliminate the error (and stop spying by EA, if that's your stance), is to add the following to the file \windows\system32\drivers\etc\hosts:
This prevents the game(s) from even starting the handshake process, short-circuiting the error path.
In summary: The error is harmless, it is not the cause of crashes / etc. in the game itself per se though it appears it might throw programs such as A/V into a tizzy (when I feel like it, I may investigate this further.) You can just ignore it, or if it bothers you having it in your event log, take one or both of the steps outlined above.