First, a trick: the relevant message here is the first line. If you paste it in the search box of Processing.org, you will probably find several related threads.

The static mode is shown in several (most) examples of the reference: you type a few lines of code in the PDE, hit run, and get a result. It wraps it automatically in a setup() function and run it like a normal sketch. It has limitations, because you cannot put a function inside another function, for example, so if you have one, you must declare setup() and put most of the code there. That's the active mode.

I don't know why you get this error with the code you show, which should be safe to run in this static mode.
There is a typo, a ;: at the end of one line (extra colon), but once corrected, it runs fine in 1.5.1 (with a path to an existing image). Perhaps it won't work in 2.0a, where P3D is replaced by OpenGL.