I assume the Dialogs line was meant to prompt for a folder where the RTFs were going to be found. This is not happening with your code so I've changed that part.
The error you were encountering was due to the fact that you were trying to overwrite the currently open document. This code below saves it with a changed suffix so the error is avoided.
Code:
Sub RTFtoDOC()
Dim FName As String, fldr As FileDialog, sItem As String
Dim sNewName As String
Set fldr = Application.FileDialog(msoFileDialogFolderPicker)
With fldr
.Title = "Select a Folder"
.AllowMultiSelect = False
.InitialFileName = strPath
.Show
sItem = .SelectedItems(1) & Application.PathSeparator
End With
FName = Dir(sItem & "*.rtf")
While (FName > "")
Application.Documents.Open FileName:=sItem & FName, ReadOnly:=True, AddToRecentFiles:=False
sNewName = Split(FName, ".")(0)
ActiveDocument.SaveAs FileName:=sItem & sNewName, FileFormat:=wdFormatDocument
ActiveDocument.Close SaveChanges:=wdDoNotSaveChanges
FName = Dir()
Wend
End Sub