apt error: "The list of sources could not be read."

You have added some incorrect lines to your file /etc/apt/sources.list, which probably should have been executed in a terminal instead.
To resolve this you need to edit the file /etc/apt/sources.list and remove the referred line(s) that should not be there.
As a guide, sources.list should only contain lines that start "deb", "deb-src", "cdrom" or a "#" symbol, anything else is wrong and should not be there. Please refer to the error message, which should contain a line number.
To edit the sources.list file, press ALT+F2 at the Ubuntu desktop and then type the following command in the box, depending on your Ubuntu flavour:
For Ubuntu:
gksudo gedit /etc/apt/sources.list
For Kubuntu:
kdesudo kwrite /etc/apt/sources.list
Exactly as you see it there, then press enter/return. Enter your password when prompted and edit the file in the editor as advised above. You should then save and quit the editor.
The program which reads /etc/apt/sources.list should work again.

For ubuntu 7.10 please paste the below:

#deb cdrom:[Ubuntu 7.10 _Gutsy Gibbon_ - Release i386 (20071016)]/ gutsy main restricted
# See http://help.ubuntu.com/community/UpgradeNotes for how to upgrade to
# newer versions of the distribution.

deb http://us.archive.ubuntu.com/ubuntu/ gutsy main restricted
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy main restricted

## Major bug fix updates produced after the final release of the
## distribution.
deb http://us.archive.ubuntu.com/ubuntu/ gutsy-updates main restricted
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy-updates main restricted

## N.B. software from this repository is ENTIRELY UNSUPPORTED by the Ubuntu
## team, and may not be under a free licence. Please satisfy yourself as to
## your rights to use the software. Also, please note that software in
## universe WILL NOT receive any review or updates from the Ubuntu security
## team.
deb http://us.archive.ubuntu.com/ubuntu/ gutsy universe
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy universe
deb http://us.archive.ubuntu.com/ubuntu/ gutsy-updates universe
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy-updates universe

## N.B. software from this repository is ENTIRELY UNSUPPORTED by the Ubuntu
## team, and may not be under a free licence. Please satisfy yourself as to
## your rights to use the software. Also, please note that software in
## multiverse WILL NOT receive any review or updates from the Ubuntu
## security team.
deb http://us.archive.ubuntu.com/ubuntu/ gutsy multiverse
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy multiverse
deb http://us.archive.ubuntu.com/ubuntu/ gutsy-updates multiverse
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy-updates multiverse

## Uncomment the following two lines to add software from the 'backports'
## repository.
## N.B. software from this repository may not have been tested as
## extensively as that contained in the main release, although it includes
## newer versions of some applications which may provide useful features.
## Also, please note that software in backports WILL NOT receive any review
## or updates from the Ubuntu security team.
deb http://us.archive.ubuntu.com/ubuntu/ gutsy-backports main restricted universe multiverse
deb-src http://us.archive.ubuntu.com/ubuntu/ gutsy-backports main restricted universe multiverse

## Uncomment the following two lines to add software from Canonical's
## 'partner' repository. This software is not part of Ubuntu, but is
## offered by Canonical and the respective vendors as a service to Ubuntu
## users.
deb http://archive.canonical.com/ubuntu gutsy partner
deb-src http://archive.canonical.com/ubuntu gutsy partner

deb http://security.ubuntu.com/ubuntu gutsy-security main restricted
deb-src http://security.ubuntu.com/ubuntu gutsy-security main restricted
deb http://security.ubuntu.com/ubuntu gutsy-security universe
deb-src http://security.ubuntu.com/ubuntu gutsy-security universe
deb http://security.ubuntu.com/ubuntu gutsy-security multiverse
deb-src http://security.ubuntu.com/ubuntu gutsy-security multiverse

Save the source list

Run the update manager

gksu "update-manager -c"