It appears that there is a minor bug in DSD Master. We will issue an update with a fix pretty soon, but in the meantime the workaround is very simple.
If the first thing you try to do with DSD Master is make a Hybrid-DSD file it will fail. Instead, it is necessary to first make an Apple Lossless file. You just have to do it once. That is all that is needed to make the bug go away forever. After you have done that you can create Hybrid-DSD files.