My setup:
Dell 2950 running ESX with an MD1000 attached storage array.
Note: This server is remotely located in another case.
My Process: RDP to the 2003 server that I want to convert, install VMware Converter, go through the GUI, and let the app run. Well, it would fail at 2% everytime.
Fix: RDP and VMware converter do not work very nicely together. So what you have to do is connect to the console
(ie. from start -> run "mstsc /v:your.server.com /console'')
Next you need to authenticate using local administrator credentials, no domain authentication.
So after I logged in like this, I ran the Converter tool, and I'll be damned if it didnt clone straight to my ESX 3.0 server via VC.
Hopefully this helps out some people, I thought I was going insane....