System -> Settings -> Advanced -> Show onsole messages in footer.
Reload the UI, then try starting up iSCSI and see if it gives you a more useful error message.
Thanks for the suggestions, here is the log
Dec 23 11:29:15 freenas notifier: istgt not running? (check /var/run/istgt.pid).
Dec 23 11:29:15 freenas notifier: istgt not running? (check /var/run/istgt.pid).
Dec 23 11:29:15 freenas notifier: Starting istgt.
Dec 23 11:29:15 freenas notifier: istgt version 0.4 (20111008)
Dec 23 11:29:15 freenas istgt[5949]: istgt version 0.4 (20111008)
Dec 23 11:29:15 freenas notifier: normal mode
Dec 23 11:29:15 freenas istgt[5949]: normal mode
Dec 23 11:29:15 freenas notifier: istgt_lu_disk.c: 648:istgt_lu_disk_init: ***ERROR*** LU1: LUN0: open error
Dec 23 11:29:15 freenas istgt[5949]: istgt_lu_disk.c: 648:istgt_lu_disk_init: ***ERROR*** LU1: LUN0: open error
Dec 23 11:29:15 freenas notifier: istgt_lu.c:2058:istgt_lu_init: ***ERROR*** LU1: lu_disk_init() failed
Dec 23 11:29:15 freenas istgt[5949]: istgt_lu.c:2058:istgt_lu_init: ***ERROR*** LU1: lu_disk_init() failed
Dec 23 11:29:15 freenas notifier: istgt.c:1669:main: ***ERROR*** istgt_lu_init() failed
Dec 23 11:29:15 freenas istgt[5949]: istgt.c:1669:main: ***ERROR*** istgt_lu_init() failed
Dec 23 11:29:15 freenas notifier: LU1 HDD UNIT
Dec 23 11:29:15 freenas notifier: LU1: LUN0 file=/dev/ada2, size=2000398934016
Dec 23 11:29:15 freenas notifier: LU1: LUN0 3907029168 blocks, 512 bytes/block
Dec 23 11:29:15 freenas root: /usr/local/etc/rc.d/istgt: WARNING: failed to start istgt
Dec 23 11:29:15 freenas notifier: /usr/local/etc/rc.d/istgt: WARNING: failed to start istgt