I have exactly the same problem when I try to annex Nationalist Spain as Germany N/N 1936. I'm running a new game started with 1.3a (I have in fact a brand new installation). Tried all kinds of various methods (like changing to 16bit colordepth, renaming the avi folder and so on) without any luck.
I have sent a bugreport to Paradox with an attached zipped version of my saved game for analys.
We just have to wait and see what comes of that.
In the meanwhile I'll try to puppet them like someone here mentioned