Xcode 3.2.6 is the latest version of Xcode 3 (there is now an Xcode 4, but the book was written around Xcode 3 - if you’d prefer to use the newer Xcode 4 by downloading it, you might like to take a look at: <a href=”http://beginning-mac-programming.timisted.net/>http://beginning-mac-programming.timisted.net</a> to see the differences.
Removing the Developer directory might help on its own, but it’s likely not to fix the problem of pulling up old Xcode project templates. I’d suggest also removing the other directories mentioned in that post. Make sure you have a good backup first though (TimeMachine etc).
Do you remember if you ever installed Xcode a long time ago (say 2 or 3 years ago) and then subsequently deleted it? It might have been needed if you had been instructed to install the tools necessary to build and install certain source-code-only distributions of applications/tools/etc.
The Software Update process shouldn’t do anything to Xcode; the version you install is currently the version you’re stuck with until you initiate a manual upgrade to the next version (though I suspect this may change in the future).
Sorry that you’re having this issue; I’ve only seen it mentioned a few times, and it isn’t something I’ve ever experienced myself, despite doing some fairly severe messing around, deletion, reinstallation etc of numerous Xcode version across multiple machines, which is a shame because I might have better answers to fixing it more quickly!
Hopefully once you’ve got Xcode sorted out, the rest of the book will be plain sailing!