Update: I managed to get my Sony DSC-S70 to work again: 1. power-on the camera with "PC mode" on LCD. 2. wait for a while so that optics goes inside again. 3. then I dropped the camera on the floor (on 1 cm thick carpet) from the height of 1.2 meters.
Then I powered on the camera again and now it is working fine. But maybe the error will come again.
It seems that there is typical problem in electronics: connections inside the camera are loosen (either IC on PWB) or flex cables are having bad connection etc.
Mike