You receive the following error at the point that the Converter utility is verifying the source and destination directories.
VMware’s advice is to open up the Disk Management section in Computer Management and ensure that there are no virtual devices mounted as the Converter fails when it attempts to emulate them. This could be an .iso file that has been mounted as a physical drive using emulation software.
In my case however the Converter failed because there was an Iomega Zip drive in the PC that was being converted. Removing the zip drive resolved the issue.