When creating a VM using a CentOS ISO the system creates the VM OK.
Does this VM created by VMware Studio 2.0 GA build?
During import to ESX 3.5 I get several errors with "Cannot configure the source image".
I think you are getting this error while using VMware Converter. This is just a warning message and appearing while using VMware Converter 3.5. You will not get this error message if you use VMware Converter 4.0. You can ignore this because after ignoring this warning, we can able to import the image successfully.
Then after importing it does not recognize the guest OS type and have to manually change it to be Other Linux 32 bit (it is a CentOS 5.3. Is this a bug or something missing in the configuration?
I think this is not a bug. I observed that in VI client 2.5 and 4.0 CentOS is not there in Guest Operating System version list. So I guess this is because of VI client limitation.