OK, it has been a LONG time since I converted my .lit files to epub as I did this right after I purchased my 2G Ipod Touch so bear with me.
When I converted mine, I used ConvertLit to strip the DRM from the books and that is all I used that program for. I did know my password already so I don't believe I needed any other tools. What you end up with after this is still a .lit file but the DRM has been stripped. Take this file and add it to Calibre. Then have Calibre convert that file to epub format and you should be good to go.
It does appear that ConvertLit has not been updated in years. Are you running a more modern OS like Vista / Win 7 (64bit)? If so, you might need to run the program in compatibility mode or as administrator.