I already tried that option, but it did not work for me.

However, as soon as I turned off my Kaleidoscope 2.3.1 Control Panel, LM started up no problem! I did not turn off any other control panels/extentions in EM Manager.

I have no idea what Kaleidoscope has to do with memory allocation for LM, but it might be worth the try if you are experiencing type 2 error upon LM launch.