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Not sure if this is the right place to ask, but here I go:

I ike to kit bash a lot of different kits from a lot of different companies, one of my friends wanted to buy one off me and/or try to sell some of my 'kits' at cons. I don't think this is legal, and I don't think it is fair use since I can't significantly alter faces of peices ( I do remove a lot of the icons).

But he pointed out people use/sell custom lego creeations all the time, but does that relate? http://brickartist.com/ & http://www.burikmodeldesign.com/

If i take a head from GW, put a scar on the face, give him a new hat from a different line (warlord), but him on a flying bike from made from parts of gw & chapterhouse, and use a torso from a modified GI joe, with legs from an historical gw model, would that be fair use?

There was even talk of selling an orginal art (like a drawing) and getting the kit bash free, or a trade. I know this is fine between friends, but at a con?

You can sell whatever you like as long as it's an original creation, using original bits.

If you were re-casting the models and then selling them it would be illegal, but you're not.

Once you bought it, it's yours to sell.

The only vendor I know that was shut down was that chinese website that recasts expensive Necron and Marine's vehicles and sells them for a quarter of the price

What AG said.

It is completely legal to adapt existing kits and sell them as one off pieces.