This might be better suited for the ArcGIS Desktop space, as someone there may be able to comment on what might be happening in the conversion of the data to KML.
I have seen issues like this before. Unfortunately, sometimes the KML/KMZ is just corrupt with no hope when you get an error like that.
Though, you could attempt to check it out to see what the error is saying on that line. Since it is a KMZ, you will have to unzip it to get to the KML. Then you can open it up and read the code text, etc.
This article shows some suggestions on how to do this:
I had the same issue a while back. At the time I was using 9.3. I think I used ET-GeoWizards (don't quote me on that) instead of the built-in ArcGIS conversion tool. Unfortunately, it doesn't look like that converter is offered for free anymore. Have you tried online conversion services to see if you fare any better with them?