Today I upgraded to Android SDK 2.3 and I also upgraded the Eclipse Plugin Androi Developer Tools 8.0 (from 0.9.9). I also upgraded my Java Development Kit to 1.6_22.
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tl;dr: also check for stale SDK paths in the "local.properties" file.
Here's how I fixed it: I went through the answer given by Richard Le Mesurier, and also checked the path to the Android SDK in Window > Preferences > Android as mentioned by CommonsWare (since I did indeed change the SDK directory a while ago), however it still couldn't find it.
Then I noticed that I had a file called "local.properties" which referenced the old location for "sdk.dir". I changed that to the new location to match what was in Window > Preferences > Android. Then deselected the build target in Project > Properties > Android, hit Apply, re-selected it, and hit OK and cleaned the project. That worked! Thanks all!