This one stumped me for a little bit.
It's all to do with the path of you VMFS.
You can't use the system path for example.
Say I wish to store the logs on
pwd output:
/vmfs/volumes/07-iSCSI/logging/esxihost00
/vmfs/volumes/4ddcdc06-2ec1019a-2e4c-003048f15d1a/logging/esxihost00 #

You should enter this as:
[07-iSCSI] logging/esxihost00

In the Syslog.global.logDir in the advanced Settings.
An alternative is to set the path via the ssh shell which does the correct translation for you.

esxcli system syslog config set --logdir=/vmfs/volumes/07-iSCSI/logging/esxihost00