Well I did so trial and error and have come to a conclusion that is has to deal with the GNOME desktop/login GUI. I traced the init and inittab and other scripts and found out that by Default Linux will load GNOME. I changed this to Default to XDM and it will come up all the time, but when I change it back to GNOME I get the above error.
I also tried to see if X was already started, but I could not find it. Or atleast maybe I'm not looking correctly. The process I would take would be to boot to Text (inittab set to 3). Then I would look at all process with "ps - ef", but could not see an X process running. The funny thing is if I type in "startx", GNOME login GUI will come up correctly, though it starts with a black background instead of the usually blue. But, if I type in "gdm" it will get the above error stating X is already running. I have also noticed that it sometimes complain/errors about the Bluecurve theme. So it is possible that the themes could have been corrupted. I tried re-installing GNOME, but still same results.
So my question then is how does "startx" process differ from "gdm". I tried tracing the two different process, but I would get confused and loose track. So if someone could explain it to me that would be awesome.
So for the time being I'm using XDM until I can sort the GNOME out.