Follow the un-install instructions. I think that is in a readme file in the pkg you download. Then install the older version which is available on the dev site.
It's been a few months since I submitted an app store build but I believe Xcode 3 is no longer supported for app store submission. Somebody correct me if I'm wrong.
If this is the case, then you generally need the most recent version of the developer tools to submit builds to the app store and you should never submit builds built with beta developer tools.
I've gone back and forth from Xcode 3 and 4, mainly because Xcode 4 seemed to be a bit rushed and buggy on first release; going by changes in 4.1 and 4.2 things seem to be improving and we're all going to have to get used to Xcode 4 eventually as I doubt Xcode 3 will ever be supported for Lion and iOS5 development.
You need to get used to xCode 4 anyways, because the iOS5 will be in Xcode 4.2 and ++ only.
And it's not that hard after all once u know it, i even find it easier (exept it still crashes after some hours, or slows my pc down.)
You can install more than one version of Xcode at a time. They just need to go into different folders. There is place in the installer where you can change the location of the install. Look in the AboutXcode.pdf file in your Developer folder for instructions.
I believe that Xcode 3.2.6 is still acceptable for submitting apps to the app store. I'm guessing though that there won't be any more versions of 3.x.