What am I doing wrong?

[Wayne]

You don't drag a .CDI to the open image file.

Use the icon button (I think it looks like a folder) which is on the left side of a little white box (for text entry of filenames).

When you click the icon button described above, it will open an explorer box that allows you to choose the drive, path and filename for the .CDI.

Also, don't change ANYTHING in the settings except perhaps the OVERBURN option.