I reinstalled Flash Builder and updated Flash CS4, and it still shows the error. I am guessing nobody else has had this issue or I am doing something stupid.
This is not a solution but a possible workaround: have you tried creating the container in FlashCS4 and then exporting it as swc and importing into FlashBuilder.
Mmm, no, I haven't tried that but I will, at least it will allow me to work with Flash content. Just so weird that Flash Builder cannot find Flash CS4, and I cannot find a reference to this error anywhere on the web.
Thanks for the alternative!