I think the problem is you need some guide curves in the second parameter to 'CreateLoftedSurface'. I re-worked your sample a little bit to include this. See the attached file. Also this will not work if the circles are on the same plane.
I drew two circles at elev 0 and moved the seond circle some distance along the Z direction. I tested the routine on these two circles and it worked with no problem.
I hope this will get you in the right direction.
I think the sample sdk application at: