I unchecked "Merge tangent faces" and the lofted cut worked
This is one of those not helpful errors that SolidWorks spits out occasionally. Usually it is because there is a zero-thickness geometry that is being generated from whatever you're trying to do. As you apparently figured out, you just have to experiment with the settings and try moving things around until it works. I know that's annoying, and not that helpful but unfortunately this is how it has to be.
Try it with the center line.