This was the answer. I needed to add iusr_machinename. I then left the identity as 'Launch User'. Thanks so much.
2) Since you are calling the EXE as a COM server, you may not have it configured correctly in DCOM Configuration. Once you are in DCOM Config (in Component Services), check the Security tab for Launch Permissions and Access Permissions. If they are set to default, change it and edit and add the username you need.