When creating the geostatistical layer, I would suggest that you use a shapefile or a file geodatabase rather than an XY layer. I.e. use the CopyFeatures tool.
And because you are using a non-projected coordinate system means that EBK will use chordal distances.
I don't think it has to do with the source file of the .lyr file, because this densify function can succeed on one computer, meaning the .lyr file is correct and can be accepted.
Because you can repro the problem and we can't we need to try a few things on your side if possible. A geostatistical layer, is basically a set a parameters and a pointer to the input data. It is dynamic in nature and without the data it is broken.