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 had this problem recently and the fix was ridiculously simple. I remembered that I had been editing the target settings and under the "Properties" tab in the "Executable" field there was a space after the value which was ${EXECUTABLE_NAME}. Yes, a single space. It was impossible to see unless you highlight the field. I figured this out because I had edited that field seeing if I could add a command line option that way. I guess when I cut the additional option back out, I missed a space. So while this is the only possible cause of this problem, it's worth checking out.