I've tried the Interbase 64bit gds32.dll in the system32 and I still get the error. I've moved it to wow64 (which is where XE installed it to) and same error too.
If Interbase XE 64bit installed a gds32.dll to SysWOW64, it is the 32bit version. You shouldn't take that one. It should have installed another 64bit version in system32. Otherwise you could take the gds32.dll from the Interbase directory C:\Program Files\Interbase (not Program Files (x86) !!!). If Interbase installed itself to Program Files (x86) it's not the 64bit version.
(Never ever move DLLs from system32 to SysWOW64 and visa versa because system32 has 64bit versions and SysWOW64 has 32bit versions and they are not interchangeable... period)
Does Lazarus need to be told where to look for the dll?
No, not if the gds32.dll is in the searchpath (which C:\Windows\system32 is).
Maybe I should just move over to Firebird!
Yes. You could still try Interbase XE server or higher (which has a 64bit version). But I don't think it is free. And I'm not sure if you can upgrade from Interbase 2009.
If you're not stuck with Interbase for some reason, going to Firebird 2.5 server 64bit would be simplest solution.
So it's either Lazarus 32 bit with Interbase 2009
or Lazarus 64 bit with Firebird 2.5 64bit (or 3.0)
or Lazarus 64 bit with Interbase XE+ 64bit.
I'm also not sure why you would want a 32bit Interbase version but need to have Lazarus 64bit. In that case Lazarus 32bit would do just fine. And if you definitely want 64bit Lazarus (for some reason) you should also want a 64bit DB-engine.