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Rather than within Quartus, I've had better luck using the device installer from the windows start menu. Start->All Programs->Altera 13.1..->Quartus II Web Edition...->Quartus II device installer. Do this while Quartus is not running.
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I did do it from the device installer in the start menu. In fact I can't do it from Quartus anyway as it directs me to use the device installer from the start menu. Also, I have tried it with Quartus open and with Quartus Closed. I don't get why it can't find the .qdz file when they are defnitely there in the folder I specify.