I also checked just now with an oscope on the output pins with the old cold and new code I just changed, for some reason its getting in the interupt and freezing.

I changed the interupt as follows and seen below. Everything else is the same :

SERIAL_INT: ; SERIAL INTERRUPT ROUTINE

CJNE R3, #3, BYTEONE
CJNE R3, #2, BYTETWO
CJNE R3, #1, BYTETHREE

BYTEONE:

MOV R4, SBUF ; Laser on or off
AJMP ENDGRAB

BYTETWO:

MOV R6, SBUF ; MOVE THE RECEIVED DATA OUT TO REGISTERS
AJMP ENDGRAB

BYTETHREE:

MOV R5, SBUF
AJMP ENDGRAB

ENDGRAB:

CLR RI
DJNZ R3, EXITINT

MOV R3, #3

EXITINT:

RETI ; EXIT THE SERIAL INTERRUPT ROUTINE

Will this not use R3 to get one byte and exit, getting the next byte the next time the int is called, and the third the next time?
I understand this will mess everything off if I get off by one byte, so I am also going to add a line for a start bit characture as suggested, but Ill do this later - after I figure out why its freezing in here.