Well, do you have C:\torque\tmpquark\map2dif_DEBUG.EXE? Because that seems to be the problem
I have mine setup so that where it says 'Directory of Torque Files', I just have that aimed to a folder called "Hammer Files" (I use Hammer and QuArK), and for the "program executable" i have it aimed at the map2dif_DEBUG.exe inside my Hammer Files folder.
Make sure that it's aimed at the correct things.