Hi,
When the conversion is failing at 1% that clearly indicates there is something realy wrong either in the conversion process or network settings.Can you please confirm you are following all the best practices mentioned in KB:http://kb.vmware.com/kb/1004588(99% of the issues will get fixed if we follow the same except any network issue in your environment)
Regard's
Sree
EMCIE|EMCISA-V2|EMCISA|VCP4|VCP5|MCP|MCTS AD2008