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What worked for me was going to Tools .. Preferences .. Data Modeler, and then making sure that each of the "Default <x> Directory" specifications pointed to a part of the hard drive that my operating system login user had permission to reach. (I suggest a sub-directory under your login user's "My Documents" or "Documents" folder, or whatever your operating system calls it.) Allowing the initially blank defaults produced weird behavior on my machine. YMMV.
It should not make any difference whether the file has a .dmd or .dmdz suffix.
Which version of Data Modeler are you using?
The log file is normally file datamodeler.log in folder datamodeler\datamodeler\log. Is there any information here?