When I select "Add/Change Application Type" and choose 'Convert to desktop AIR application" I get a message saying 'This operation cannot be undone". Does this mean I cannot switch my project between AIR and Browser based?
The only code affected would be the database code and I was planning to write conditional compile statements to run one of the other.
basically what the message is telling you is that the application is to be wrapped as a windows application and this isn't backwards compatible, you can always change project targets manually which usually involves a bit of code changing as well.
If you wish to have a flex app which shares the bulk of its code with a windowed app you are better of creating 2 main.mxml's one for the windowed version and one for the AIR version they can then share a common source code pool.
i.e create your flex project, make a copy of the main.mxml and then change the project to AIR the copied mxml will still compile as a flex app then you create separate modules for functions/classes that are target specific.