So after quite a bit of work and going through all the property details of my project file, I found the error. As I was suspicious might to true, it was a property that was set by some colleagues at the last iPhone Developer Meeting last week to make the Debug profile work, but the technique broke the Distribution profile. If you have a similar problem, just triple check that all the code signing in your project properties are clear or default — your Distribution profile properties must be only set in the target.
So my simple red:green iPhone app has now been submitted to the iPhone store, and hopefully will be reviewed by Apple and released soon. I'll let you know when it is available!

Chris
Thank you so much for posting this. I happened to be in the exact distribution problem of having the developer profile setup, and it was being rejected from iTunesConnect. Set it back to default and voila.
Saved me hours of time I suspect. And many moments of quiet doubt.
Posted by: Mike Kirkwood | August 01, 2008 at 08:33 PM
Chris,
I can't tell you how happy I am to have found this post. I was in the same situation as you and I had been tweaking things around for about five hours when I found your post which solved my problems.
Now this was not an accident, in the Distribution/Prepare App part of the portal, step 6 says:
In both the Top Level Project Info window and the Target Info window change the Code Signing Provisioning Profile setting to the desired Distribution Provisioning Profile. If no Distribution Provisioning Profile is selectable, make sure your Configuration is set to Distribution, your Active SDK is set to Device iPhone OS 2.0 and your Distribution Provisioning Profile is installed in ~/Library/MobileDevice/Provisioning Profile. Relaunch Xcode and resume.
This is clearly wrong and the cause for a lot of frustration
Posted by: Benoit Cerrina | August 15, 2008 at 09:04 PM
I dont know, I still cannot find the provisioning profile in xCode
Posted by: Gabe Jacobs | August 29, 2008 at 09:17 PM