News to me that Cadence are distributing this but Dave Elder published version 3.4, see this link:
You need the Image Magik and Potrace utilities, the paths to these must not contain spaces. As far as I can tell from the source, two environment variables are required to locate the required utilities, rather than the one that you mentioned. Like most SKILL utilities, the menus are built "on the fly" and the design directory must be writable to allow this to work. This would normally be the case for the BRD file location. (See the start of the SKILL text for instructions on required utilities and configuration)
Dave Elder has worked very hard on making this utility work through a number of releases and many, many users have successfully imported their logos and other, less meaningful, pictures to their PCB Designs and libraries. If someone else has modified his work, they need to take responsibility for resolving your issues.