I had the same issue on a Windows 2000 server and by installing the VMware converter installation (just the Agent) and rebooting, the conversion process could get past the 2% error message. I just noticed that a message indicates to reboot if installing agent on a Windows 2000 OS.
Now we have a different issue where the VM conversion goes through all the way to 97% and gets stuck there with these messages: I have seen this when a different Citrix server was being converted and could never get past the error.
05:44:05 PM Step 1 : Connecting to VMware Converter Agent on ares
05:44:05 PM Step 2 : Creating target virtual machine and importing data
05:44:10 PM Configuring parameters for the target virtual machine...
05:44:13 PM WARNING: Dropping serial ports: Maximum number of 4 serial ports has been reached. Only 4 serial ports will be migrated.
05:44:13 PM Creating target virtual machine...
05:44:23 PM Taking a snapshot of the volume...
05:44:23 PM Cloning source volume c: into target virtual machine...
06:24:04 PM Formatting target volume e:...
06:25:01 PM Taking a snapshot of the volume...
06:25:01 PM Cloning source volume e: into target virtual machine...
06:42:46 PM Updating boot sectors...
06:42:52 PM Skipping boot.ini update...
06:42:52 PM Adjusting drive letter mappings...
06:42:58 PM Step 3 : Preparing target virtual machine
06:43:48 PM ERROR: Unknown error returned by VMware Converter Agent