Hi Pat, I run the LASTools as a separate program and not from within ArcGIS. In the download folder of LASTools there is a bin folder that has the standalone programs in there.
Look for the txt2las.exe and run that
You then need to go to the browse tab on the left hand side and in the bit that is highlighted as E:\ change that to navigate to your folder with the asc files in it. Then in the box that has *.txt as the type manually change that to *.asc and then hit the Go button.
That should then download all of the asc files into the blank box at the top left of the screen.
Once they are in there, in the bottom right of the screen there should be an output box showing laz as the output file type. You need to change that to las and then click on either run32 or run64.
After a few minutes then check in your folder where you had the asc files and you should now see a whole load of .las files.
Once you have them stored in there then you can open up ArcGIS and start a new map project.
Then go into the map tab and click on add data. Navigate to your folder with the new las files and highlight all of them to import them
Once they are imported then a new menu at the top of the screen should appear titled 'Classification'. Go into that and there is a button to 'automatically classify' and you can pick classify ground.
This then opens up a new box on the right side of the screen and you need to then click on each file in the browse menu individually and click the run button on the bottom of the box to stat to classify the data.
Once you've finished the classification part then you can open up Chad's tool as per normal and just process the LIDAR data from there.
Hope that helps
Andy