I know discussion of this has been swirling around, but I've been digging through the Q&A here and still haven't resolved my issue. It's be great if these kind of wide-affecting issues were stickied somewhere they could be easily found. Anyway…
I finally got around to installing the Xcode3.2.3 with iPhone SDK4. Naturally, this wrecked my Titanium environment.
I followed the Developer Blog instructions for downloading and overwriting the /Library/Application Support/Titanium/mobilesdk/osx/1.x.0/iphone/libTiCore.a file. After doing that, I can build okay for mobilesdk 1.3.0, but still no luck with 1.2.0. I get the result "[ERROR] Build Failed. Please see output for more details" under Titanium Developer. (using TD 1.2.1)
It looks like recreating my project (creating a new project and copying my resources from my old project into the new one) got me up and running again.