You need Xcode 4.3.1, which has iOS SDK 5.1 included. Your current version of Xcode has support for only iOS SDK 5.0 (and below). Your device has iOS SDK 5.1, so your version of Xcode (4.2) doesn't know how to use it. This doesn't mean you cannot continue to use Xcode 4.2 for development and simulator work. You just cannot put anything you create using Xcode 4.2 on your iOS 5.1 device.
Best to upgrade Xcode and stay current, in my view, however. Xcode 4.3.1 is available only via the Mac App Store and you will have to be running Lion.