I'm running Windows XP - downloaded and installed both DNG Converter and ACR 5.4. Found a 500d raw file on the Internet and downloaded, opened ok in the DNG converter, produced a .dng file that then opened successfully in ACR. And the raw file also opened in ACR.
I would first check the installation process, perhaps someone on the forum with both 10.5 and a 500d can testify. Or if they have just 10.5 do the same as I did and download a test file.
Check the DNG converter version you're trying and make sure it is really 5.4
Try an older camera model's RAW file and see if it works. If you don't
have an older camera, yourself, Google for .CR2 and there are probably
examples you can try.
The error suggests a problem with the output of an image, not the
interpretation of the RAW file, itself, but perhaps the errors are just
"The file could not be created" probably means to you trying to write the resulting files to a folder or disk that you don't have write permission to. Where are you trying to save the resulting files?