Version 1.0.1 released two days ago partially fixes this issue.

Check out Rajeev's post on this thread
http://groups.google.com/group/Google-Web-Toolkit/browse_thread/thread/46cf35719329b30

On May 15, 3:58 pm, John <[email protected]> wrote:
> Tim,
>
> Jar Method:
> 1. Remove any Buid Path references between your two projects.
> 2. Build a jar file from your project that is a dependency.  Make sure
> to check the boxes that say "Add directory entries" and "Add Java
> Source...".
> 3. Add this jar file to your main projects build path.
> 4. Try to compile GWT.
>
> On May 15, 2:52 pm, Tim McCormack <[email protected]> wrote:
>
> > On May 15, 2:13 pm, John <[email protected]> wrote:
>
> > > I am going to attempt the jar file technique since that is known to
> > > work.
>
> > I'm encountering the same issue. Can you explain exactly what you are
> > doing with the Jar file approach?
>
> >  - Tim McCormack
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