I have solved this by manually configuring the ToolPath to point to the old (version 2.0.50727.3038) version of sgen.exe
On my machine, this is in: C:\Program Files (x86)\Microsoft SDKs\Windows\v7.0A\Bin
I changed the ToolPath attribute to be:
ToolPath="C:\Program Files (x86)\Microsoft SDKs\Windows\v7.0A\Bin"
and this solved the problem.
It seems, by default, it’s running the new 4.0 framework version in: C:\Program Files (x86)\Microsoft SDKs\Windows\v7.0A\Bin\NETFX 4.0 Tools
Hope this helps somebody else.