Dynamic.classpath = true fails

Hi there, I was getting an error

"Command line is too long. In order to reduce its length classpath file can be used.

Would you like to enable classpath file mode for all run configurations of your project?"

I hit enable, and it set dynamic.classpath=true in workspace.xml Now when I build it tells me 

Exception in thread "main" java.lang.ClassNotFoundException: @vm_params
    at java.net.URLClassLoader.findClass(URLClassLoader.java:381)
    at java.lang.ClassLoader.loadClass(ClassLoader.java:424)
    at java.lang.ClassLoader.loadClass(ClassLoader.java:357)
    at com.intellij.rt.execution.CommandLineWrapper.loadMainClassWithOldCustomLoader(CommandLineWrapper.java:174)
    at com.intellij.rt.execution.CommandLineWrapper.main(CommandLineWrapper.java:38)

Is there something else I have to do to make intellij pass the right params to the JVM?