If a user is in a channel as a half-op... and right-clicks another user's name and chooses "Give Operator Status to <nick>" Chatzilla attempts to +O the other user. which returns a "You're not a channel operator" message from the server. Instead of trying to +o it should +h, as that's the only thing a half-op can do. Another way to fix it, would be to have the option to "Give Half-Operator Status to <nick>", for +h (and +o) users, and disable the "Give Operator..." for users who aren't +o.
This is fixed in Chatzilla 0.9.63 and higher. Thanks Silver. :-) Resolving.