I am reading the provisioning profile stuff on the app store website and am having a heck of a time figuring everything out. I have my distribution certificates and everything but I think that something is massively messed up in xcode. When I switch to my distribution profile in the overview pulldown - it immediately changes to "Base SDK Missing". AND - when I scroll down to the projects portion on the left side - my .app file is red? Very confused.
Distribution file is just for when you want to build for the AppStore, in which case all you can do is build the .app file (which is stored in the build directory of your project folder). You cannot run or debug that version of the app on a device since it is codesigned by Apple specifically for release in the AppStore only.
If you're just testing the waters or working on tutorials, try out the "Debug" option so you can install it on the device (iPod Touch, iPhone, iPad) in which case the provisioning profile is used to allow you to run the app on the device.
You can use whatever SDK you want via the same drop-down menu for the overview pulldown (i.e. 3.0, 3.1.3, 3.2, etc). You can also change this option in the Project settings menu for both the target and the project settings. There is a section called "Base SDK" in the Build menu I think.
The .app file will be red there in the project tree so don't worry about it and you'll never really need to do anything to that file in XCode. Just realize that it builds the actual .app file in your project folder in the Mac OS Finder.
The .app file is red because it hasn't been built yet for that specific set of build settings, which is normal behavior. The error is the "Base SDK Missing" message.
Have you installed multiple versions of Xcode? Are you perhaps editing a project with Xcode 3.2.3 that was created with an earlier version of Xcode? Xcode 3.2.3 only ships with the iOS 3.2 and 4.0 SDKs, meaning if your project was targeted for iOS 3.1.3 (for example), the new version of Xcode wouldn't have the correct SDK installed to build, resulting in that error message. You can try changing the "Base SDK" setting of the project to 3.2 or 4.0, make sure the correct "Configuration" option is selected from the drop down.