Edit.... scratch what I stated earlier as I apparently didn't read you whole post.
What does the DISM log state happened? Sometimes it provides more information than the initial error.
Trying changing your Working directory to c:\windows\sysnative\ or removing the working directory altogether and use this as your target path and file name c:\windows\sysnative\dism.exe.
That worked. Not sure why the virtual path worked, but the actual path didn't. But either way. Thanks!