I would try VMware vCenter Converter 3.0.3. You will probably have better results. But, I don't believe 3.0.3 can have a destination of a vSphere 4 Host. You may have to convert to your desktop then use 4.x to get into 4.1 inventory
Also, you may try installing converter onto the W2K box you with to convert and convert physical machine "local machine"