I beat my head against this a bit and after look all over the net I combined a few solutions and finally came up with one that works for me. Try this to get it to work with with out up grading to Flash Builder 4:
STEP 1
Navigate to your Flex 3 SDK and copy the following folders from YOUR 3.0 SDK PATH\templates\ to YOUR 4.0 SDK PATH\Templates\ .
-- Client-side-detection
-- Client-side-detection-with-history
-- Express-installation
-- Express-installation-with-history
-- No-player-detection
-- No-playerdetection-with-history
Note: Greg Lafrance recommends an addition folder "Swfobject" in his instructions over at ADOBE, but I didn't need that one myself.
STEP 2
Go to File -> Switch Workspace -> Other and create a COMPLETELY NEW workspace ( i.e: I called my Flex 4).
STEP 3
Create new project. Right Click it -> Flex Compiler -> Configure Flex SDKS's -> Add... -> Navigate to your Flex 4 SDK and add it. Click Ok. DO STEP 4 BEFORE CLOSING THE PROPERTIES.
Step 4.
Change "Require Flash Player Version" to 10.0.0 .
Step 5.
Click OK and erase the based code and copy over FLEX 4 Code with spark elements and what not.
Good Luck, Hope this helps someone out there in internet land who Googles this question.