I\'m new to xCode development and struggling my way through the provisioning system trying to run a Hello World app on a real device. I went through al steps and everything
I think Xcode 4 requires that you are running the latest iOS to use that feature, but you don't need it to install apps on a device. I have run my apps on an iPod Touch 1G (which can't be upgraded to iOS 4.3) with the same iOS as you and it worked.
Have you added your device to the provisioning profile?
What I did is opened the organizer, right click on the device on the left pane and select "Add device to provisioning profile" where you will be asked for your Apple ID (within xcode) and it will add the device to your profile without you leaving xcode, much simpler than using the online portal.