Now this is making some sense.
If I start LLBLGen from the shortcut in the start menu, no error.
If I start LLBLGEn from the Tools menu in Visual Studio 2012 (I put it in there as custom item)- I get the error.
Here is the kicker - I am not passing any arguments to it.
I edited my external tools and inspected it - no arguments passed.
I editing the program it runs, re-selecting the LLBLGen executable it still gives error.
I removed the external tool item and added it back....IT NOW WORKS!!
The way it got in there was because I had it in VS2010 and VS2012 installer put it there...so not sure what is up with that....but now it is fixed...
Thanks guys.