When I try to execute my iPhone application in simulator, I get the dreaded error
I had a similar issue with a different solution: some of my .xib files had a deployment target (2.0) that was no longer installed on my machine.
The solution was to open the xibs in Interface Builder, do cmd-opt-I to get the project info for each one, and make sure the deployment and development targets were set to correct versions.
I then did cmd-shift-K to clean the project in XCode, rebuilt, deployed, and everything seems to work fine.