Application Compiles even with Membership Error.

Hello Ladies and Gents,
      Recently I tried to convert my application from 3.5 to 4.0 however when I place the code on my server the application did not run correctly. Currently I am using Application pool V2.0 Intergrated with my application. Anything else causes the applicaiton to not run correctly.
Anyhow, I reverted back to 3.5 and now I keep getting the blue unline marking for all my membership such as Membership.GetAllUsers. The error states the following: Reference Required to Assmebly 'System.web.Applicationservers, Verson 4.0.0.0.
I already added the reference as requested and removed the TargetFramework completely in the webconfig. 
What is strange is that even though I get this error marking, the application still compiles with no problem. Should I be worried or can it stay the way it is and I should ignore th ...