I recently encountered the same error while building my project from Visual Studio:
After some investigation, I noticed that the Unreal Engine Integration Configuration inside Visual Studio now exposes a setting called Max Include Paths Length (chars). This setting corresponds to the MaxSharedIncludePaths field inside BuildConfiguration.xml (located under UnrealBuildTool/BuildConfiguration, as shown in the screenshot blow).
Solution:
I removed all MaxSharedIncludePaths entries from every BuildConfiguration.xml, deleted the generated .sln, and regenerated the solution. After doing so, the build completed normally and the MSBuild SetEnv error no longer occurred.