OK, i found a fix for this. What worked for me was to install the Windows Server backup feature in server manager and perform a quick backup. I backed up my entire C: drive to a network share but I guess any type of backup will do. After performing the backup I tried the vmware converter using version 5.1 and it created the image with no errors.
When I ran 'vssadmin list writers' from an adminstrator level command prompt before installing and running the Windows backup there were six writers that had failed being:
Writer name: 'System Writer'
Writer Id: {e8132975-6f93-4464-a53e-1050253ae220}
Writer Instance Id: {f93bab18-4b9c-4053-94cf-1d7c96b31e25}
State: [7] Failed
Last error: Timed out
Writer name: 'SqlServerWriter'
Writer Id: {a65faa63-5ea8-4ebc-9dbd-a0c4db26912a}
Writer Instance Id: {9db2d210-0803-4483-a5d1-c73859a705f2}
State: [7] Failed
Last error: Timed out
Writer name: 'TermServLicensing'
Writer Id: {5382579c-98df-47a7-ac6c-98a6d7106e09}
Writer Instance Id: {73c291f1-95c3-4e0b-b76e-95c1b375a99e}
State: [7] Failed
Last error: Timed out
Writer name: 'IIS Config Writer'
Writer Id: {2a40fd15-dfca-4aa8-a654-1f8c654603f6}
Writer Instance Id: {4b9b60ae-8713-424c-95a6-62da8e888d2f}
State: [7] Failed
Last error: Timed out
Writer name: 'BITS Writer'
Writer Id: {4969d978-be47-48b0-b100-f328f07ac1e0}
Writer Instance Id: {e69208bd-f9c8-4888-b591-19f46b618271}
State: [7] Failed
Last error: Timed out
Writer name: 'WMI Writer'
Writer Id: {a6ad56c2-b509-4e6c-bb19-49d8f43532f0}
Writer Instance Id: {d710bca6-ea70-4c22-b3a0-ca9d20899397}
State: [7] Failed
Last error: Timed out
After runnign the backup only the BITS writer reported as being failed.
Hope this helps
DJ