This is a new iPhone project, only 1 target (different from this question)
On build we get:
Failed to launch simulated application: Unknown error.
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I've had this twice for the same reason: adding a folder called Resources to the project. This is a naming conflict with something (though there is nothing called "Resources" in the application bundle by default). It might be that mysterious naming conflicts are a common cause of this problem.
To fix I renamed the folder to something else ("Assets"), manually deleted the entire build folder (clean didn't work) and quit the simulator.