This thread is resolved. Here is a description of the problem and solution.
Problem: We need to use different domain for some languages, ex: domain.fr for french and at the same installation we also need to use different folders for other languages, ex: domain/es.
Solution: You can only use one option at a time when it comes to Language URL format. The way that the plugin works doesn't let you use two options at the same time.
This is the technical support forum for WPML - the multilingual WordPress plugin.