I just recently upgraded a VS2008/.NET 3.5 SP1 project to VS2010 and .NET 4. I have a post-build event which calls SGEN to generate the XmlSerializers assembly.
When
Yes, there are two versions of sgen.exe available, one for CLR v2 assemblies, the other for CLR v4 assemblies. It bombs because you ask the v2 version of sgen.exe to process a v4 assembly.
Check how your project gets sgen.exe started. If it is a post-build event then you'll have to tweak the path to sgen.exe. I don't see a macro or environment variable to get it right automatically, bit of an oversight.