Can you try something for me, please?
Follow these steps:
- Create a new folder somewhere. Like on the desktop.
- Copy/paste "level1.tmx", "level1.xml" and your tileset named as "Base_Tile_Map.png" into the newly created folder.
- Open "level1.png" with Tiled and correct the tileset's path if needed. Then save and close Tiled.
- Open up utiLITI. Create a new project through the "File" tab, and select the new folder in which you copy/pasted the files as above.
This is to see if the error comes from a bad path handling.
If you get the same message, then try to look-up and change some settings when your in Photoshop.
I also advise you to use "paint.net" (https://www.getpaint.net/), ideal for pixel art.