Hmm, i think it's a permission problem. Open InstallESD.dmg with Disk Utility then convert the image like this.
Then try the app.
Or you could copy the InstallESD.dmg from inside the Install.app to someother place, but personally i'd go for the first option.
Thanks DoiX, but still can't get it to work. I think I got the original error as I was trying to load the ML.app into your app, oops, realised it was the InstallESD.dmg i should have been loading.. Anyway it gets to the point of asking where the new image should be saved, then comes up: Phase 2/4: Converting Image to a read write format. This may take a couple of minutes! Click on ok but I now get this error message:
Not sure why 2 progress bars are in the pic above!
Ive tried the method you said of going through disk utility first, that converts it to read/write, but still doesn't work in the app.