yeah unfortunately Apple are doing everything to "unmarket" any previous versions of iOS.
After you update your XCode with the latest version usually you see "Base SDK missing" and you need to update your project configuration to get it compiling again. Double click the project item in your project tree (or right click it and choose Get info) and in the properties windows choose the tab called "Build" (make sure you have "All configurations" selected in the Configuration select box), then find the "Base SDK" property - this is the version of iOS which you are targeting (apple usually make sure to be able to select only the latest iOS version here), then find the property called "iOS deployment target" - here you select the earliest version of iOS you will support - choose here 3.2 in your case.
There you go :) Just couple of notes:
when you make those changes to the project properties, you might need to close XCode and run it again and open the project again - sometimes it does work right after you change your project properties
if you support 3.2 make sure that if you add frameworks from 4.x to your project you soft link them, so it doesn't crash under 3.2 bcz the frameworks don't exist on the device
Marin