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The error encountered is the result of running the workflow as an application, not just running the workflow (The magic wand button vs. the play button) - this is because the error is occuring when the update values occurs.
The solution as provided by ddiesel below solves the issue.
Actually one more question. How do I use the output in a workflow? I find when I connect the Filter to another tool, it uses the preselected Filter values rather than those that are chosen by the app. Do I need to create a new workflow using the output from this app as the input?
The easiest way I've found to test apps is under View>Interface Designer>Test View. Make your feed stock selections and then click "Open Debug". Alteryx will open a new workflow with your selected inputs to test. Alternatively, you can just attach an output tool downstream from your filter, run the workflow as an analytic app (wand button), and check the output file.
I tested the workflow in Test View and with an Output and the selections work on my end. Let us know if it works for you.