I recently had this issue and found other topics on it, but with no solution:
When uploading to the ATTINY85 I got this message:
Plug in device now... (will timeout in 60 seconds)
Please plug in the device ...
Press CTRL+C to terminate the program.
Device is found!
connecting: 16% complete
connecting: 22% complete
connecting: 28% complete
connecting: 33% complete
Device has firmware version 1.6
Available space for user applications: 6012 bytes
Suggested sleep time between sending pages: 8ms
Whole page count: 94 page size: 64
Erase function sleep duration: 752ms
Error opening C:\Users\fabla\AppData\Local\Temp\arduino-sketch-FEE24017F2112790D78195284DC70DEA/ColorPalet: No such file or directory
Error loading or parsing hex file.
The solution is simple: It was the sketchname that was illegal. I had some space in the name, which I replaced with underscore, and voila! It uploaded like a charm.
I run Arduino IDE 2.0.0 (I heard elsewhere that 1.6.5 should be the highest version, but it works with this newer version as well)