This is the first time we have heard about this issue.
With AdminStudio 3.5, we are shipping Developer 7.04. You can also trying converting the INC files using the new Legacy Conversion Wizard. This Legacy Conversion wizard supports SMS, WinInstall and INC Conversion. You also have the option to build the MSi directly in this location.
After you try the Legacy Conversion Wizard, please let me know if it is still a problem. If it is please send me the INC and the NIR files for the project and I will try to determine what the problem is and will get back to you.