The issue is FIREWALL and the management ports that are needed for a REMOTE machine to be converted are being blocked by a firewall rule. You must disable or open ports on your firewall. In case of my client, they needed a Vista machine to be converted and were getting exact same message. Once the Windows Firewall was DISABLED it worked great! Note that I said disabled. Do not stop the firewall service that will bring the entire firewall down just open the ports temporarily.
For example in Windows Vista: Control Panel --> Windows Firewall --> Turn Windows Firewall ON or Off --> OFF
I assume in case of 2003, if behind firewall, see if you can temporarily move it to a network port of the same network as your converter machine. Good luck!