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I was able to get it to work on 10.1 SP1. But perhaps some caveats:
- the tool I used is Feature to Polygon, and it only works on changing lines to polygons, not points
- I had to have lines crossing/intersecting other lines, in order to create an enclosed area in which the polygon is created -- just drawing lines isn't enough to create polygons out of them. If you don't have lines that intersect, perhaps that's where the program is getting hung up (or it just doesn't do anything so it appears as if it's getting stuck).
In the past, I've used Hawth's Tools (Create Minimum Convex Polygons) to create polygons from points. There are some potential ways within ArcMap to do this, but I haven't tried them -- "Aggregate Points" and "Create Thiessen Polygons". You could also change your points into lines, and then combine them all to use "Feature to Polygon". I haven't seen anything that translated both points and lines.
GIS isn't like CAD where you can simply "close" lines. If you have lines and you literally want those shapes, just in polygon form, I think you'll have to redraw them as polygons (or use trace). As least as far as something out-of-the-box.... There's probably a way to write a script, but I'm not proficient in Python enough to answer that.