Glad you enjoy it. I'm not working on it currently, but that may change.
You have to place CDTV.TM in S, not CD32.TM! The toolkit will work flawlessly if you put the correct files in the correct places
You were never asked if you wanted to build an ISO since you were using CD32.TM instead of CDTV.TM.
The toolkit is meant for compilations. If you want to create single game discs, I advise against using the toolkit. You may want to give Wepl's WHDLoadCD32 test disc a try then.