If you only have the v3 silverlight plugin, you can only use the v1.x builds, and you have to target your application for SL3 in Visual Studio. If you don't use any of the new features, you can just continue to use v1.2, and downgrading shouldn't be a big issue. If you need any of the new functionality, you WILL need SL4 both on your development box and on the client PCs.