AdminStudio 3.5 ships with Developer 7.04.
INC conversion has been completely redesigned for this release to create more accurate Windows Installer packages.
However any INC file should be handled with the new conversion. Have you tried using the Legacy Conversion Wizard for trying to convert the INC file?
If not, please try the new Legacy conversion wizard to convert the INC file to MSI. If the problem still exists, please send me the INc and the NIR files and I will have one of the developer's look at the problem.