This bug is reproduced on Delphi 7 and C++Builder 6 at least (probably in later versions too) when starting Borland make utility. Indeed, the message "Fatal: Command arguments too long" and the real problem are as like as chalk and cheese.
Check the length of your PATH variable. In my case the length was > 400 characters. Deleting some paths reduced the length down to 300-350 characters and solve the problem.