Sounds like the MOBI file contains an invalid UTF-8 character. Not all arbitrary strings of bytes are valid UTF-8 data, and apparently Calibre is trying to parse the UTF-8 data during the conversion process for some reason. In my experience, these errors usually indicate that the text encoding is not actually UTF-8 (e.g. ISO-8859-1).
See also Calibre bug 1057331 at:
There probably ought to be a means of overriding the encoding when working with MOBI files that incorrectly specify their encoding. Either that or an option to use the C local (one byte = one character, with no interpretation thereof) and let the user fix the encoding problem in the resulting EPUB file (which is much easier to work with, since it's basically just a ZIP file).