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I've successfully created epubs with Calibre from HTML files downloaded from the sacred-texts sites, though I haven't worked directly from one of their CDs.
My guess is that the index.html file in on folder is backreferencing "up the folder chain" and thus trying to include in lots of other files irrelevant to the book you want, and this is overflowing something.
I'd try copying just the book you want somewhere else and building with that -- you might get some file not found errors but it should work. If that doesn't work, as a next step edit the index file you are starting with so no other folders or files are referenced.
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