I downloaded a pre-release version of the iPhone SDK and tried to update one of my existing apps using a binary I built with it. Obviously you are not supposed to do this b
Before you download a pre-release version of the SDK from developer.apple.com, there are several prominent warnings, one of which clearly states that pre-release versions of Xcode / iPhone SDK can NOT be used to build production binaries. So the answer to 1.
is an emphatic no.
As far as I can tell, the only option to be able to build production binaries that iTunes Connect will accept is to delete the pre-release version of Xcode / iPhone SDK and re-install the older stable version.