Well this is strange. I imported your archive in my version of Quartus (16.1) and didn't run into your problem. I had another error instead:
Error (14703): Invalid internal configuration mode for design with memory initialization
I'm not familliar with the Max10 so I don't know what exactly is Quartus' deal with memory initialization but just for the test I disabled the memory initialization in the on_chip_memory_0 component in Qsys, regenerated and recompiled, and this time it went all the way through without any error.
Could it be a problem with your Quartus installation? Can you try and reinstall it?
Do you have a license for the Nios II processor? If not, when selecting the Nios II/f it will generate a time limited compiled image that needs to stay connected to the USB blaster to work, and maybe this part is triggering a bug in Quartus Try selecting the Nios II/e core instead and check if this changes anything. The Nios II/e core doesn't require any extra license. Don't forget to regenerate in QSys before you recompile your project in Quartus.