Hello Joe, external drive has one more thing to consider, first, it cannot be NTFS formated, but considering you already protected one folder, I guess this is not the issue.
ANother thing is that you will be asked where to save the disk image, usually it is a folder on the very same hard disk you save disk images into, but NOT in the folder you are protecting or any subfolder of it.
Usually the problem is in the folder or file permissions or corrupted folder(s).
I suggest you create a new folder, move all the files from the original folder into this new one and then encrypt this new folder.
Again, make sure no file or subfolder are named same as the partent folder i.e. the one you are protecting, we had issues with that.
If you cannot make it work, I'm available for a remote session from now up to one hour.
rgds
Zsolt