Verify the credentials, network path/IP Address, and sufficient network space to handle the VMDK convesion. If these are fully verified to be valid, this error will also occur if the ESX or ESXi server is not licenced with VMWare.
 

NOTE: If this error occurs on a non-licensed ESX\ESXi installation, this is a VMware specific issue. VMware requires that the ESX/ESXi server be licensed for VDDK APIs to work correctly. VMware's VDDK APIs are used during the P2V conversion to ESX/ESXi server. With ESX/ESXi Free License edition, VDDK APIs won't work and a "Host is not licensed for this feature" error will be seen.

 

NOTE: Backup Exec System Recovery (BESR) 2010 uses VMware VDDK 1.1, which has official support for Windows XP, 2003 and Vista.
Symantec System Recovery (SSR), formerly Backup Exec System Recovery, uses VMWare VDDK 1.2, which adds support for Windows 7 and 2008, as well as those operating systems supported in BESR.
 
VMware advises that customers may experience technical issues where BESR is used during VMWare conversions on Windows 7 and 2008, as these platforms are not officially supported. Errors include but may not be limited to those mentioned above. Symantec recommends using SSR when converting using Windows 7 and 2008 operating systems.