When you say you are using the .Net 4 Rx version, which version of Rx are you using? 1.1 or 2.x? If you are using 2.x, you should not refer to System.Reactive, but rather to System.Reactive.Core. I suspect that you updated this project with .Net 3.5, but did not update all the necessary links. Make sure that the Rx version you are using is not for Silverlight 4 or .Net 3.5 (which did not have IObservable / IObserver in the kernel).
This might be easiest if you just delete the reactive links and bundle them nuget for you using the version of Reactive Extensions - WPF Helpers. Note. You may need to change the import for classes using Rx to import System.Reactive.Linq if you are using an older version that had extension methods in the old System.Linq namespace.
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