For starters that doesn't look like the same Library Creator XML I'm using, I'd suggest you go here and get the latest release of Arno's dev tools of which Library Creator XML is part of. Mine looks like this BTW:
You can click the "details" button and possibly gain a clue about what's causing the problem. That looks like the standard .dotnet unhandled exception screen, it could possibly be because you need to install a newer version of .dotnet from microsoft. Sorry, I don't know what the requirements are for Library Creator XML, probably .NET v3.5, if you have ADE installed you can go into the ADE install folder and run "ADE-Check.exe" and it will tell you which versions you have installed.
That said, sometimes I think these things are easier if you do them on a code level once or twice before using an app to do it. Basically what Library Creator XML does is write an XML script based on the options you've chosen and then it compiles that script with bglcomp. You can manually write the XML and compile it yourself just as easily. Copy the code below to a new notepad document and save it on your desktop (or wherever) as "hangar1tres3_lib.xml":
With that done, open up your "Microsoft Flight Simulator X SDK\SDK\Environment Kit\BGL Compiler SDK" folder in a new explorer window and drag & drop the XML onto bglcomp.exe. It should generate a "hangar1tres3_lib.bgl" on your desktop or wherever you saved the XML which is your library .bgl.
sourceFile="C:\Microsoft Flight Simulator X\Addon Scenery\Dan French Core LibrariesVol1_FSX\hangar1tres3.MDL"