This question has evolved over the past several weeks to cover more general issues with xcode4 (and upgrading projects form older xcodes).
However many of the issues can be solved by following the same set of instructions.
If you have any of the following issues, try the methods in the accepted answer:
In file included from /Volumes/Development/Path/LBProject/LBProject/LBProject-Prefix.pch:15:
In file included from /Volumes/Development/Path/LBProject/LBFDefines.h:23:
In file included from /Volumes/Development/Path/LBProject/Classes/LBProjectAppDelegate.h:11:
In file included from /Volumes/Development/Path/LBProject/LBProject/../FKNDirectory/FKNDirectoryManager.h:10:
/Volumes/Development/Path/LBProject/LBProject/../FKNDirectory/FKNDataModel.h:11:9: fatal error: 'Merchant.h' file not found 
1 error generated.
lexical or preprocessor issue file not found
NB: The steps below will solve 90% of your Xcode archive issues however, from the comments it is suggested you try quitting Xcode first. This may save you hours of setting tweaking.