Sorry to revive this old thread, but it fits my problem perfectly. At first I was using converter 5.1, and wasn't converting the filesystem to basic (instead of LVM) - I posted a thread about that, no one responded yet (Having trouble with hot converting RHEL 3.0). However, now that I've switched the disk to basic, and am using 5.0, I get a conversion that fails at 99% just like yours did.
I tried starting the 'failed' conversion with the RHEL 3 install cd, copied stage1 and stage2 from /usr/share/grub... like you did, but when I reboot, it is the same, 'Error loading operating system'.
Did you mean that you copied these on the source, then converted again? Otherwise, I guess I have to try updating to RHEL ES 3 Update 9, since that's the only version officially supported by ESXi 5.x. (as in my other thread, not really sure that's a hard requirement, or just for support purposes)
Thanks!