I think that SDK is not suitable for 'This local machine' conversions, however you can try to leave hostname empty and try again.
When you try to connect to localhost (127.0.0.1) you actually try to connect to the converter's agent similar to connecting to other physical machine, thus requiring thumbprint and respective open ports.
From the other hand - conversion of physical machine do not require installation of whole converter but just converter's agent (for Windows) which is covered by SDK.
Are you sure you want to install whole converter and convert 'This local machine'?
HTH
