Solved! Go to Solution.
In case anyone else happens to stumble upon this same error, here's what I did to fix it (thanks to ESRI support!):
- Disable background geoprocessing
- Use a DEM in a grid file format (simply export it out of the GDB) that is located in a root folder (ex. "C:/yourdata/dem")
I'm not sure, however, if it was a combination of both procedures or just the DEM in a grid file format in a root folder. Can't go wrong with both of them though!