How to setup a Sandbox for Flex 4 SDKs

1) Unzip the SDKs, as you download them,into the recommended directory structure shown here:
C:\apps\FlashBuilderBeta2\sdks\3.4.1
C:\apps\FlashBuilderBeta2\sdks\4.0.0
C:\apps\FlashBuilderBeta2\sdks\4.0.0.13875

2) In Flash Builder 4, add the SDK by goign to: Window > Preferences > Flash Builder > Installed Flex SDKs. Don't make it the default if you want the older stuff to still function.

3) Create you sandbox project and be sure to specifically select the newly added SDK, rather than the default.

3) Add this compiler option in your project settings (right-click on
your project-->properties-->Flex Compiler-->under additional compiler
arguments):
-use-network=false

4) You may also need to make the following modification in Flash Builder: Project->Properties->Build Path->Library Path->Framework Linkage and select 'Merged into code'.

5) Also one very important action which you must perform as pointed out here:
1) Rename the folder /frameworks/libs/player/10.0 to "10"
2) Edit the file /frameworks/flex-config.xml and remove ".{targetPlayerMinorVersion}" and save

6) If you still have problems, here are some references that might help you:
Reference A
Reference B