Make sure the VersionSpecific property on all of your ESRI project references is set to False. You may also need to remove the references and add them back in.
The error is complaining about not finding the 9.3 version of the System assembly - "ESRI.ArcGIS.System, Version=9.3.0.1770".
Make sure you are referencing the 10.1 version of this file. The same goes for all of your ESRI references.
You have 2 errors in your code that need to be resolved. Try fixing those and see if you still get the error when you run the app.
I'm not really sure what you're trying to say. If you don't fix those errors then your code will not compile. If your code will not compile then you aren't going to be migrating anything. There are only a handful of things you need to do to upgrade the project. The only thing you'll be left with is to fix any errors due to changes in the ArcObjects libraries, such as the two errors listed in the screen capture you posted.