Here is a set of steps you need to follow to configure a new SDK on Flash Builder 4.
Download the AIR SDK
1) The latest SDK can be downloaded from here : http://www.adobe.com/products/air/sdk/
2) Navigate to /Flash_Builder_Installed_Folder/sdks
3) Find the folder named ‘4.0.0’ (Our Flex 4 SDK) and make a copy of it in the same location, and name it, ‘4.0.0 AIR’
4) Extract the contents of the downloaded archive, and paste it inside the ‘4.0.0 AIR’ directory.
Configuring the new AIR SDK
1) Right Click on the Project Name in Flash Builder, and select Properties
2) Select ‘Flex Compiler’
3) Select ‘Configure Flex SDKs’
4) In the popup window that opens, Select ‘ADD’ and point to the new SDK you just created, namely ‘4.0.0 AIR’.
5) Click ‘Ok’
6) Select ‘Use Specific SDK’, and point to your new SDK.
7) Click ‘Ok’
The application should now get complied with the new SDK.