With Windows 8 and VS Express 2013 i too had a lot of problems. I fixed most of them by slightly changing the source code and by running Unreal Editor and VS Express 2013 as Administrator. Now since my monitor is dead, am now working on my brothers PC which is Windows 7 and VS Professional 2013. Works like a charm…no issues at all.
But anyway to make it generate project files i modified the VCToolChain.cs located in Installation Directory\Engine\Source\Programs\UnrealBuildTool\Windows\VCToolChain.cs
In VCToolChain.cs at line 1503, i changed it to:
var VS2013Path = “D:\Microsoft Visual Studio 12.0\Common7\Tools\”;
Then in Installation Directory\Engine\Source\Developer\Windows\VSAccessor\Private\VSAccessorModule.cpp i modified at line number 748 to this:
FString BaseExecutablePath = D:\Microsoft Visual Studio 12.0\Common7\Tools\;
After these changes i had no problems of generating project files or opening them. Only problem i had was compiling from the editor. I had no problems compiling using Visual Studio.
I posted this on AnswerHub with more detailed information and pictures. Please check it out: https://answers.unrealengine.com/questions/21153/unreal-fails-to-read-environment-variable-and-fail.html