The pipe character -- | -- might be causing the problem. Try using the following in your bot's config file (the setting will already be there if you used the advanced or complete config):
what operating system you using btw? and what filesystem you running it on? cos the only one i can think of that would have problems with pipes is fat/ntfs
Sometimes the eggdrop's conf file doesn't create those files, so in my experiance for some shells if you create those files it works perfectly. So just create the squashbot.chan file and then try running it, it should work then.
I had the same problem..
you are running linux, log in as root and type: ls -all
there you see that root is the owner of the folder your bot is in..
log in as root, type: chown "username" "folder where the bot is"
start the bot..