Snapshot files are not preserved when converting a machine using Converter.
(Below has been copied from http://communities.vmware.com/message/1333201)
If you want to migrate from host 1 to host 2 using VMware converter then you will loose all snapshots.
VMware converter will just take what is current and move that as a Virtual Machine.
If you need to go from VMware Server 1 to VMware Server 2 on the same host then you can just upgrade the host and your snapshots are most likely preserved. I use most likely here as IIRC the snapshots are not garantueed to work while going from version 1 to version 2. In practice however this seems to work fine.
When you need to take the VMs from one host to another host, I would personally just copy the Virtual Machines themselves, with them completely shutdown (not suspend) and would expect it to work afterwards. You can then upgrade the virtual hardware manually on the VMware Server 2 host if you do not need to run the VMs on a Server1 type of host anymore.
I would also suggest that if the virtual machine is cold clone using the iso then it should keep the snap's.
I hope this helps get around the issue.