I can't help you with the error, but I can at least answer some of the rest.
There is no mids.exe to install. This is only data and image updates, not a full replacement.
I recommend not extracting in the \Mid's folder directly - extract temporarily in Downloads or something. Then merge things by hand - make sure the Data information goes into the \Mids\Data folder (basically, just drag and drop the extracted Data into \Mids and let it combine with the existing Data folder ), and the Images goes into the Images folder (same thing as Data). When you combine them, you should get notifications of name conflicts - accept the overwrite to put the new information in.
The z-patch.rtf you can just read and decide what you want to do with it, and the README goes into the \Mids folder (I still don't think I've read it yet) if you want to - clean install suggestion is don't extract those.
Although the install notes say to extract the file into the Mids install folder, and in theory that should work, depending on how you have your extractor program set up, you could accidentally make a subdirectory in Data or Images, or not have overwrites happen and be missing some info. If you're having a problem after installing directly into the \Mids folder, make sure you don't have a \Data\Data or \Images\Images. If you don't, or if you clean it up and still have problems, I suggest (another) clean install of the most recent, base Mid's and the extraction as above.
Hopefully someone can give you more direct information on that error.