I have run into a really interesting instance of this. I have a CASO and a managed backup server. Created a convert to VM from a backup. Made sure the iso was on the server, pointed to it in the job. Kept getting the "unable to open the iso" error. Suddenly realized that the conversion job was running on the MANAGED SERVER!! Couldn't find the iso locally. Copied same to managed server, created the job on that server, and now waiting to see what happens.
Gosh! I love progress!
I guess it wil still fail according what we discussed here:
Workarround seem to create the convert job directly on the media server