So it seems the problem is Eclipse caching old data. Starting Eclipse
with the -clean option solves this. Also eventually it will happen by
itself which would explain the other posters reports that "it just
started working" or started working after restarting Eclipse enough
times. See:
http://www.filsa.net/2009/06/13/re-conversion-to-dalvik-format-failed-with-error-1/

Google should post this information with the "updating Android" help.

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