First of all, you don't need the entitlements file unless you are adding custom key/value pairs that do not exist in the provisioning profile. When your app is built, any entitlements from the provisioning profile will be copied to the app.
Given that you still see an error message about missing entitlements, I can only assume the code signing options are not correct in the build settings.
You need to make sure the correct profile is selected for the "Debug" configuration, and to be safe, that you have selected the correct profile for both the "Debug" and child-node labelled "Any iOS SDK":
Although this screenshot shows the "Automatic Developer" profile selected, choose the exact provisioning profile you want from the drop down, just for testing purposes. It could be that Xcode is automatically choosing a different profile than the one you want.
Also be sure to do a clean build, completely delete the app from your device, etc. This is just to make sure you don't have some old fluff hanging around.