Make sure your antivirus is not running when launching the installer. In my case when this happened, I was using AVAST and it blocked the unpacking.

Edit:
Then I'm just going to tell you what Peterf1999 is going to tell you
"Your PC is broken. Your OS is broken"

I installed the SAME EXACT GAME with SAME EXACT CONVERSION by peter 2 months ago on a Windows 8 x64 machine. Ran into the same problem as yours and solved it as I told you. Before you can say that you don't have AV installed you better make sure that windows defender is not running, because it blocks excuting most of this unpack scripts. Also, the packed ARC archive is quite large so it takes a while to start extracting. Be patient.

tell me if you have Windows Defender installed then we will talk


Edit #2:

Strange. What is your system specification? you should have enough memry to unpack such large archive (although it won't matter, if it is memory problem then FreeArc will through error). Post your specifications so other members can help you.

other games that is repacked in the same way was POP 2008 and it was always an AV problem. Had your problem when I installed Dark Sector 2 months ago or something so I thought that was the solution to your problem. Anyway post your specs.

Edit #3: Oh well, Windows 7 compatibility is always good and 16GB of RAM is an overkill too for unpacking this archive. your system is great and no problem with RAM or OS . While you were away, I re-installed my backup again on Windows 8 x64. I had AVAST and disabled it and setup completed flawlessly. Honestly I don't know how to help you.

Here's a thought: make sure that the ARC archive is named correctly as in the instructions by Peterf1999. most of the time it's an oversight to archive name and make sure you replaced the DXSETUP.exe or VCREDIST.exe file with the loader from Peter's conversion