Swarmttied,
First make sure you check out the Errata link:
http://xnaessentials.com/forums/t/23.aspx
You will need to make sure you have the corrected code for Chapter 7.
Second, if you want to run this in 3.1 then you need to actually load up the XAP project in the XACT tool that came with XNA Game Studio 3.1. Once you load it up and resave it in the new format you should be in good shape. Fortunately, this is the only gotcha when working with 3.1.
Hope this helps, but if something still isn't working as expected please let me know!
Thanks,
Chad