Best to start with the original data, to clear up the projection issue, and to thus understand the actual extent to see what size image has been commanded. For example, if the kriging setup asks the system to create a 2 terabyte image and there is only 800 GB free on your disk, that's a problem. Just guessing, to illustrate why it is useful to start with the original data.
What is the download link to the original USGS LiDAR file? Any info on that file, like what projection it is supposed to be in? Also, info on the machine, like free space on disk, free space on the volume where TEMP is located, etc., helps.