just to share a tiny experience with iOS 4.2. I didn't want to upgrade from 4.1 to 4.2.1 until I had to add iAd to my iPad app.
I initially installed ios 4.2.1 to a separated directory other than /Developer, which has 4.1. I first removed everything under build, oops, no matter what version of Ti I tried, it crapped out in simulator. I even tried the 1.5, I did check the path information, 4.2.1 was in the beginning, after I ran out of options, I deleted all versions of iOS and installed 4.2.1 into the default /Developer. woola, it worked. It worked just fine in both simulator and device.