Flow & Rike Thank you,
Only thing that helped me was to totally replace the adt. I downloaded the latest ADT bundle from: http://dl.google.com/android/adt/adt-bundle-windows-x86_64-20140702.zip
and used that instead of updating my current environment. So Rike - you gave me good direction to solve this voodoo 
Flow - I'm a little bit confused because of what you wrote because, there is a static init(Context) method in SmackAndroid in the latest version and it is also mentioned in the readme that I must use it so.. can you elaborate what exactly did you mean? I'm sure it will help lot's of programmer that are migrating to the new version.
What is the replacement for using SmackAndroid.init? I cannot connect to my server and I think my initialization is probably not correct anymore..