Why am I getting 'One or more types required to compile a dynamic expression cannot be found.'?

I had a project that I've updated from

• .NET 3.5 MVC v2 to
• .NET 4.0 MVC v3

Compiling I get an error when I try to use or set the @ViewBag.Title property.

One or more types required to compile a dynamic expression cannot be found. Are you missing references to Microsoft.CSharp.dll and System.Core.dll?

I have done the following

1. Followed the upgrade steps
2. Set the target framework in the Project/Properties/Application tab to .NET Framwework 4
3. Added the System.Core framework manually
4. Added the Microsoft.CSharp framework
5. Added the System.Xml framework
6. Added the System.Xml.Linq framework
7. Made sure my Web.Config is correct (it gets written over by Web.Debug.Config, etc)
8. Created the model, controller and a Razor View
9. Create a __Layout.cshtml_

I'm at loss as to what else to do?

EDIT:

I notice in the GAC Gui there is System.Core 3.5.0.0 but no System.Core 4.0.0.0. Does this mean that its getting confused and is still using the previous version? Or am I misunderstanding the GAC?

EDIT:

My web.config looks as follows

...
<compilation debug="true">
    <assemblies>
        <add assembly="System.Core, Version=4.0.0.0, Culture=neutral, PublicKeyToken=B77A5C561934E089" />
        <add assembly="System.Data.DataSetExtensions, Version=3.5.0.0, Culture=neutral, PublicKeyToken=B77A5C561934E089" />
        <add assembly="System.Data.Linq, Version=3.5.0.0, Culture=neutral, PublicKeyTo