From the logs:
Opened 'Z:\sql-dev\Windows 2000 Advanced Server-000001.vmdk' (0xe): twoGbMaxExtentSparse, 41943040 sectors / 20 GB.
"c:\virtual machines\sql-dev\Windows 2000 Advanced Server.vmdk" : failed to open (The system cannot find the path specified).
"Z:\sql-dev\Windows 2000 Advanced Server-000001.vmdk": Failed to open parent "c:\virtual machines\sql-dev\Windows 2000 Advanced Server.vmdk": The system cannot find the path specified.
On the machine where you have VMware server installed, you have <some dir path>\sql-dev\ where your "snapshots" are stored. Is Z: mapped to c:\virtual machines\? If yes, then the file z:\sql-dev\Windows 2000 Advanced Server.vmdk should be present. If it is not....that the problem.
However if it is present, then there is some problem. Which version of VMware converter are you using?
Installing converter on the same machine as the virtual machines would surely solve the problem. But it would still be nice if you can tell me which version of converter you have installed.