Mike:
I do not use application builder, but I do use the compiled FlexViewer application. I have ran into the same problem as you with previous versions. Sometimes I was able to do the same thing as you and it worked (usually simpler applications with less widgets), but other times I could not get the application to run in the next release unless I rebuilt the compiled application (easier than compiling code, but still could be time consuming).
Unless the new release has added new functionality that your end-user cannot live without, I would just leave the application at v3.4 and wait for a later version with more improvements to upgrade the application.