Build problem with Unity iPhone/ Xcode 4.2

Hello Unity Community,

I am having a problem building my game from Unity iPhone basic (1.7.0f1) - in Project Settings/Player I have set iPhone SDK version to iPhone OS 3.2, which is the most recent choice available in that drop down menu. When I Build Run, the editor says “Exception: Please make sure Xcode 3.1 including the iPhone SDK is installed”.

I have Xcode version 4.2 on my Snow Leopard MacBook Pro. If I manually open the Xcode project that Unity builds after giving the above error, and try to Run it from within Xcode, there are hundreds of critical errors. Do I need to upgrade Unity iPhone?

Thanks!
D-+<

Bump.