Thanks for the quick reply but I still have the same error with the equals sign.

Hmm.. The easiest way to do this without having to mess with shortcuts and targets is this:
-Go into Steam My Games.
-Right click Unreal Tournament 3, and click properties.
-Click 'Set launch options...'.
-Type in: -mod=..\BSMod
-Click OK.
-Run Unreal Tournament 3 from Steam like you normally would to play.

Thanks a lot its working great now.