I was able to fix this in Android Studio 0.2.0 by changing API from API 18: Android 4.3 to API 17: Android 4.2.2
This is under the Android icon menu in the top right of the design window.
This was a solution from http://www.hankcs.com/program/mobiledev/idea-this-version-of-the-rendering-library-is-more-recent-than-your-version-of-intellij-idea-please-update-intellij-idea.html.This required a Google translation into English since it was in another language.
Hope it helps.