Finally figured it out.
Install the latest mame/maximus.
Honestly, why don't you guys publish an actual 'useful' way to get this thing working? Rather than having to learn all the arcane background workings of mame and maximus arcade.
Anyway, this is what i found out.
You need to use the mame.exe to generate the mame.xml in the mame folder.
Open a CMD window in the mame.exe folder, and type....
mame -listxml > mame.xml
Then, configure mame in maximus arcade , point to the mame exe directories and rom dir etc.
Start maximus arcade, and it will say something like 'loading mame'.
Then, it will crash with the invalid media location error.
But, when maximus was started, it generated a file called gamelist.xml (from the mame.xml file generated above), in the mame folder (not the maximus folder as you might expect).
But, the gamelist.xml contains invalid data, I think because maximus arcade does not seem to be under development and has not kept up with changes to mame. This invalid data is what causes the crash to occur.
So, we need to correct the invalid data in gamelist.xml.
Open gamelist.xml, I used notepad++ as it handles large files ok, and do a 'replace all', you want to change 'machine' to 'game' (without quote marks).
Then, save gamelist.xml, and, open maximus arcade and with a little luck it should work ok now.
Why must it be so hard? Even these instructions would be difficult for a novice to follow.