Windows SIM was unable to generate a catalog - Unknown error (0xc1420127)

[psitadmin]

I am trying to create an answer file for an unattended Win 7 Install. However I am getting "unknown error 0xc1420127" when attempting to create the catalog file for the install image. The exact error is:
I have read almost every result in Google and ruled out what appear to be the most common explanations.
- I am trying to create the catalog on a 32bit Win 7 SP1 machines
- The install.wim comes from a 32bit Win 7 SP1 DVD that was downloaded directly from the VLSC
- I have the latest version of WAIK, all windows updates and latest .NET
- I am the owner and have full permissions on the install.wim file
- I have tried reinstalling WAIK from scratch

Any ideas? Its driving me crazy.
Full error text:

13:02 :
13:02 : Windows SIM was unable to generate a catalog. For troubleshooting assistance, see the topic: 'Windows System Image Manager Technical Reference' in the Windows OPK or Windows AIK User's Guide.
13:02 :
13:02 : System.ComponentModel.Win32Exception: The system cannot find the path specified

Server stack trace:
at Microsoft.ComponentStudio.ComponentPlatformInterface.WimImageInfo.PreCreateCatalog()
at Microsoft.ComponentStudio.ComponentPlatformInterface.OfflineImageInfo.CreateCatalog()
at Microsoft.ComponentStudio.ComponentPlatformInterface.CatalogCreatorImpl.CreateCatalog(OfflineImageInfo offlineImageInfo)
at System.Runtime.Remoting.Messaging.StackBuilderSink._PrivateProcessMessage(IntPtr md, Object[] args, Object server, Int32 methodPtr, Boolean fExecuteInContext, Object[]& outArgs)
at System.Runtime.Remoting.Messaging.StackBuilderSink.PrivateProcessMessage(RuntimeMethodHandle md, Object[] args, Object server, Int32 methodPtr, Boolean fExecuteInContext, Object[]& outArgs)
at System.Runtime.Remoting.Messaging.StackBuilderSink.SyncProcessMessage(IMessage msg, Int32 methodPtr, Boolean fExecuteInContext)

Exception rethrown at [0]:
at System.Runtime.Remoting.Proxies.RealProxy.HandleReturnMessage(IMessage reqMsg, IMessage retMsg)
at System.Runtime.Remoting.Proxies.RealProxy.PrivateInvoke(MessageData& msgData, Int32 type)
at Microsoft.ComponentStudio.ComponentPlatformInterface.ICatalogCreator.CreateCatalog(OfflineImageInfo offlineImageInfo)
at Microsoft.ComponentStudio.CatalogGenerator.CreateCat(ProgressDialog pd, Object o)
13:12 :
13:12 : Windows SIM was unable to generate a catalog. For troubleshooting assistance, see the topic: 'Windows System Image Manager Technical Reference' in the Windows OPK or Windows AIK User's Guide.
13:12 :
13:12 : System.ComponentModel.Win32Exception: Unknown error (0xc1420127)

Server stack trace:
at Microsoft.ComponentStudio.ComponentPlatformInterface.WimImageInfo.PreCreateCatalog()
at Microsoft.ComponentStudio.ComponentPlatformInterface.OfflineImageInfo.CreateCatalog()
at Microsoft.ComponentStudio.ComponentPlatformInterface.CatalogCreatorImpl.CreateCatalog(OfflineImageInfo offlineImageInfo)
at System.Runtime.Remoting.Messaging.StackBuilderSink._PrivateProcessMessage(IntPtr md, Object[] args, Object server, Int32 methodPtr, Boolean fExecuteInContext, Object[]& outArgs)
at System.Runtime.Remoting.Messaging.StackBuilderSink.PrivateProcessMessage(RuntimeMethodHandle md, Object[] args, Object server, Int32 methodPtr, Boolean fExecuteInContext, Object[]& outArgs)
at System.Runtime.Remoting.Messaging.StackBuilderSink.SyncProcessMessage(IMessage msg, Int32 methodPtr, Boolean fExecuteInContext)

Continue reading...