The key words there are "Failed to create" Go to the location specified and see if you can manually create a folder.
Not specific to xlights, but in general it is not good to create files on your desktop. Use the folders for documents or create a new folder under C: I often use c:\xlights and then put my show folders in there. Adding things to the desktop leads to "icon death" where you cannot find things as you have so much junk on your desktop and at least in the past if you ever had to reinstall windows you could lose the desktop, but not the documents and other folders.