BREAKING NEWS! I restarted my Mac and attempted to create the disk image and this time it worked. Aargh! I didn't expect that, so sorry to trouble you.
I am glad, however, to hear about this proxy thing from Tom. So I checked my pref settings and it was set to "use original or optimized media". I guess that means it was using the right media anyway, but I remain a little confused about this point, despite having read about this on another site.
I thought the purpose of proxy media was so that you could edit with less drag on your system, because it's using smaller files, but in so doing, the proxy media is still referring to the original so that when you output, it uses the original. Why would it ever want to output using only proxy? No one wants to use crappier material on purpose and if I want to output a smaller video file, I choose that output resolution to suit.
You are saying that if you use proxy to edit with, you have to go into prefs and change the settings to use original. This is very, very good to know, so thanks! If my settings are always on "use original", then when I import, I suppose there is no purpose in creating proxy at all, is there?
I know that optomized creates huge files which, for most non broadcast purposes, are unnecessary, as I understand, but I did think that the proxy was useful. I guess proxy is only needed if you have really limited processor power or HD space, but for me, not necessary (Imac with i7 and 16GB ram)
Thanks all. Appreciate the help.