Using an ISO Image that is just a copy of the Windows XP Filesystem is not the best source from which to create a Virtual Machine! So since you still have access to the HDD, create a virtual Machine adding the HDD as a physical disk to the Virtual Machine and do not run or power it on as this is just temporary so as to use VMware vCenter Converter Standalone to convert it. That way a proper copy of the HDD will be created as a normal file based virtual hard disk, at which point you can delete the temporary one and disconnect the HDD from the system.
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