Solved! Go to Solution.
William Deadman re your 'fix' -- my guess is the new ArcMap document had a nice clean raster environment that didn't have environment properties set that were breaking the tool. An example of a setting that would cause this issue would be a workspace or scratch workspace setting pointing to a workspace that did not exist.
One place to look for such settings is in the Results window entry, which includes a list of all active environment settings when the tool was run.
One solution for this problem may work. when you create a mosaic from DEMs, do it in projected coordinate system. My problem solved when I created DEM in file geodatabase by selecting WGS 1984 projected coordinated system.