Ok, so while playing as a player in the game we shut off the OLs reinforcements by placing two toons adjacent to each other on the spawn point, all the OL could reinforce with is 4 square or more monsters but did not have the space to place them on the board. Is there a rule that states you can't do this or that the OL may remove the toons from the spawn point so he can bring in more monsters. Completely shutting off the Reinfrocements changes the game entierly. and suggestions?

You cannot shut down reinforcments - if the spaces are blocked you can reinforce to the closest available spaces. Your Overlord should reread reinforcement rules.

Specifically, he should read the rules on the inside cover of the quest guide. They;re easy to miss, not being part of the proper rulebook, but they still apply.