Well, you wouldn't want to choose the destination. Rather you want to mount the image file. Since you're already running full OSX, you can simply double click the image file to mount it.
Otherwise, you'll choose the image in File > Open Image.
Also, please send me a copy of /Library/Logs/panic.log (to the support email address). I might be able to help you determine what's wrong with your low-level environment.
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--Dave Nanian
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