The answer was: be patient and use a plain computer, not a VM. On that plain computer - just a regular old laptop - after following the procedure above I just let it be while the "Endpoint Security Media Encryption EPM Explorer" window appeared to be hung. In the windows task manager I could see it accrue millions of I/O Read operations, with hundreds happening per second. After about 70 minutes of this rather high read rate, the process of file extraction finally started with a progress bar etc.
I should have mentioned before that the computer where it ran for 16+ hours with no progress was a virtual machine, with the encrypted content mounted to the guest as a shared folder from the host. I saw reads happening at a rate of only a few per second, nothing like the rate I saw on the plain computer. I suspect some kind of slowdown occurred in that setup, so the 1+ hour it required on a plain machine was multiplied tenfold or more (just guessing of course).
I still think this is a bug - the Unlock.exe client should put up a progress bar when it's preparing a large extract - but not a fatal bug, just incredibly annoying.
HTH