Just an addendum to that, the helloupload does appear to have uploaded most of the hellocanvas theme... the specific error above is:
C:xamppxampphtdocsmagento1mediahellouploadhellocanvasthemeappcodelocalMage) [function.dir]: failed to open dir
If I look on the server I see a folder
"C:xamppxampphtdocsmagento1mediahellouploadhellocanvasthemeapp" but inside that folder there is no "code" directory... only a design directory.
So it is copying over, which suggests rights are fine... are you sure the install.xml is correct?