I ran into the same error with Windows XP and VMWare converter 5.1.
To fix this, when the error is displayed, I did:
Start > Run > services.msc
Rightclick on VMware vCenter Converter Standalone Agent > Properties...
Log On tab
Check "Allow service to interact with desktop"
Okay.
Repeat for the two other VMware vCenter Converter services.
Start all three services, and click Retry on the VMware error