
The simple resolution is to map a drive letter at the top level so the vmx and vmdk files are visible directly under the drive letter.
The converter wizard will then allow you to progress to specifying the destination system.

Vmware Update Manager (VUM) is the preferred update tool for keeping Vmware ESX servers up to date.
Sadly in version 5 Vmware dropped the ability to patch VMs, but it's an essential part of the Vmware Sysadmin's toolkit none the less.
Installation of VUM is pretty straight forward. You create an ODBC connection to either a local SQL Express installation or a remote dedicated SQL server (on a 64bit server this needs to be done with the 32bit odbc admin tool C:\Windows\SysWOW64\odbcad32.exe and remember to install the SQL client connectivity!). You then run the setup wizard off the vCenter media and select your ODBC connection.
The UMDS (Update Manager Download Service) is an additional component of VUM which can be manually installed, again off the vCenter media. It allows you to download the patches and metadata to an isolated VUM server which has no access to the internet (direct or via a proxy).
There are two stages - the download and getting the files into VUM:
Stage 1.
Stage 2.
There are several methods for getting the data into VUM. All require the data to be "exported" from the download folder. (this is per the vmware documentation but I can't see any different between the download folder and the exported folder)
If you're not planning to use IIS to serve up the files to VUM, you need to get this export folder onto your VUM server local disks (either with a USB drive or manually copying over CIFS to the VUM server disks) and use the "shared repository" feature to tell VUM where they are. Click the "download now" button to get the metadata into VUM.
Using IIS is a nice way to automate the process (connectivity permitting).
Finally, you need to either wait for a scheduled patch download, or modify your schedule to "once" and select "run now" to make VUM process the metadata otherwise you won't see any patches.
Here's a quick summary of the different roles
UMDS server
VUM Server
Additional reading:
http://communities.vmware.com/message/2091767?tstart=0
http://virtuallymikebrown.com/2011/10/23/vcenter-update-manager-patching-guide/
When you try to change a service console IP from DHCP to Fixed, you'll get this error.
A simple workaround is to add a second service console with a new IP and delete the original.